Whilst organic growth is an important element of any business as it is a source of shareholder returns, the impact of growth through an acquisition can be more beneficial for any business.
Michael Naidoo, CEO of FNB Specialised Finance says, “The key to growth through acquisition is taking advantage of good opportunities and could be a quicker, cheaper and less risky proposition to grow your business. Furthermore, acquisition offers a number of other advantages such as easier financing and instant economies of scale.”
Managing the risks involved in an acquisition can be equally complicated. Acquisitions might provide business owners with a way to grow and strengthen their companies, but they can also present unique challenges.
Naidoo explains that, “for a smooth acquisition process; a solid and comprehensive strategy needs to be put in place. Before contacting the company you want to buy into, research and get as much information as possible. An added advantage would be you already have established relationships with the owners.”
You need to know why acquisition as a growth strategy makes sense for your business. Many often assume that only large corporations are involved in buying a business, but this is not the case.
“Acquisitions can jumpstart growth and buying an existing enterprise means the foundation is already in place. For example; a firm may have employees with talent and experience as well as a hard-to-replicate customer base. By finding a business that has a good track record and desired geographic footprint, you can improve your own company,” says Naidoo.
It is important to remember that financial resources need to be available for an acquisition, which includes integration costs and working capital.
Naidoo says that “business owners need to approach their bank or financial institution when funds or capital is needed in the event of an acquisition, as tailor-made solutions can be done to suit any specific business.”
It is important to know how you are going to pay for the business. Can you borrow? Do you have excess capital?
“If you don’t have the capital to fund an acquisition, you can also look at the assets or cash flow of the company you’re acquiring. The appropriate mix of equity and debt is deal-specific and your bank is there to help,” says Naidoo.
Even the cost of lawyers, accountants, and other professionals who will assist during the due diligence phase can be a significant expense, and you don’t want to cut corners when it comes to professional guidance.
“Establishing relationships with all stakeholders is important when you start a business, so that when you want to acquire a business for growth purposes, you are equipped with the necessary knowledge. Your bank can then guide you and develop solutions for your business needs,” concludes Naidoo.