Growing By Acquisiton: A Key Factor That Drives Successful Acquisitions.
When targeting an acquisition it’s pretty easy to get lost in the numbers. After all, financial analysis is critical for acquisition financing, valuing the acquisition and seeing how the Company can add financial or enterprise value to the current business. When considering growing by acquisition, a harder question to assess is whether the acquisition is likely to successful in the long run. A study*(see link below) done by PriceWaterhouseCoopers found that those acquisitions that provided a capability or strategic fit created on average 14% more value than those that did not.
One way to assess strategic fit (and improve odds of success) is to ask… How will this potential acquisition help our current business? I find answers fall in two general buckets: it improves an area of our business that is lacking or it further enhances a Company’s core competency or strength. More specific things company owners have said include, “This acquisition…
- adds capabilities to better serve and sell to our current customers,
- provides a key employee skill set (sales, operations) that we don’t have,
- creates expanded roles for key executives and more opportunities for development,
- adds personnel that are in short supply in our region,
- creates a new service that is in line with where the market is going,
- allows us to test an acquisition growth strategy (roll up or diversification), or
- eliminates a competitor.”
So when analyzing your next acquisition remember to ask how the acquisition helps your current business. The answers to that question may help you better understand the strategic fit and thus improve your odds for long term success.
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