If growing your business is a priority for you, but it’s not happening organically, as quickly as you would like, then a business acquisition may be the answer!
You may be wondering what an acquisition is. In simple terms, an acquisition is where a business buys a majority share of another, to gain control of that business. This could either be through a share or asset purchase.
Although the thought of buying a business may seem like an improbable or even daunting thought, it can often bring about significant benefits for both the buyer and the seller.
An acquisition can offer a host of advantages, however, the benefits attributable will be different for every transaction, and they will differ from business to business. There may also be some unanticipated benefits included too!
In this blog, I will cover the 6 most common benefits associated with buying a business.
Accelerate Growth
Growth can usually be achieved more quickly through acquisitions compared to organically. The should improve your long-term financial position.
Enter a new market
Buying a business can immediately expand your current business’ market reach, especially where it currently has no presence. In particular, it may allow your business to overcome or bypass any barriers to entry.
In addition to entering new regions, the acquisition may represent entrance into a similar or complimentary market in the same region.
Diversification
After the acquisition, you may now be able to offer new products or services which you can sell through your own distribution channels.
Two possible ways of acquiring a business are vertical or horizontal integration.
Vertical integration is where you buy your customers/suppliers. The benefits here are that you are in control of the process, you would reduce costs, and improve efficiencies.
Horizontal integration is where you buy a business within the same industry as your own. This would allow you to create economies of scale, increase market power over distributors and suppliers, increase product differentiation, as well as helping to expand your market or enter new markets.
Access to new resources or capabilities
It can often be significantly quicker, and possibly cheaper, to gain access to new resources through an acquisition than developing the same in-house. An example of new resources acquired could be products, services, technology, business processes or distribution channels.
Better production facilities are often less expensive to buy than to build. Your target business may have large unused capacity and utilisation of this could improve profitability of both businesses.
Cost savings
Cost savings may be achieved through both economies of scale and due to synergistic cost savings in support functions such as purchasing, marketing and finance.
Gain market share
You will gain access to your target business’ customers and markets, and vice versa, increasing reach for both businesses. There is a strong relationship with market share and success.
Interested?
At DJH (formerly DTE) Corporate Finance we have extensive experience in researching, identifying, approaching, and successfully acquiring businesses having acted for many companies across a range of sectors. Our experience extends to assisting businesses to raise finance in order to fund their acquisitions plans.
I recently provided buy-side advisory services to a Private Equity Fund on the acquisition of two businesses. You can read more about that here.
If you are interested in exploring the benefits of an acquisition or, you would like to be added to our database of acquisitive companies, please contact me on 0161 819 1910 or [email protected].
