The first two opportunities we presented for capturing the recovery – Visioning and Positioning – were broad organizational strokes painted across your business canvas. Now we shift to the finer lines of more detailed and targeted approaches that can be implemented in the current market cycle to capitalize on these unique times.
A downturn is an opportunistic juncture for scaling through acquisition if you are able to act and know where to look. Acquiring and integrating another organization into your existing one is an accelerated method for scaling up a business. It affords nearly immediate access to new skills, customers, products, channels, and markets.
By now, you are familiar with our three-step Assess-Design-Evaluate methodology. We also apply it to advise clients on growth strategy decisions.
First, you need to determine if your company is “growth ready”, meaning in a position to manage growth. We carefully evaluate your entire organization and assess your risk profile (i.e. is your team aligned when it comes to taking business risks), internal systems readiness, and your capability to acquire and integrate all elements of another organization.
There are two primary reasons a company may want to implement an acquisition strategy: 1) grow sales volume, or 2) grow strategic assets. Despite the current recession, many businesses are in a unique position to emerge as a stronger player during the recovery if they have cash to invest and a talented team.
Declining valuations, which are typical in a recession, will make certain acquisitions especially appealing. While your competition is focused on surviving rather than thriving, now is an opportune time to get a clear picture of your possibilities.
In the Design stage, we develop an investment thesis that covers why you want to acquire, what you want to acquire, how you will pay for it, and what is in it for the seller. If you require outside capital for the acquisition, our blueprint will provide an attractive case for financing. This is also useful for increasing the efficiency of future acquisitions that you might consider.
In the final step of the Assess-Design-Evaluate process, we will reach out into the market to identify willing sellers who have had enough of the chaos impacting their business and simply want out. Once an acquisition is selected, we evaluate the integration effectiveness on both a commercial and cultural basis and provide transaction structure options that meet your needs as well as the sellers needs.
Assets vs. Volume
Many of the business owners we work with are curious if it is better to purchase assets (skills and capabilities) or volume (positioning) once they have decided to scale. A volume acquisition involves buying out competitors within your existing market or new markets to increase market share. This is an appealing opportunity when smaller players are struggling for survival and will welcome a rescue.
When considering an acquisition of assets, remember that it is cheaper “to build” than “to buy” by a 3:1 margin. However, if you are entering a new market, it’s significantly more prudent to seek out a seller who has already invested the time and money to develop the highly desirable skills, solutions, and products your customers are clamoring for than to develop them in-house.
In Mistake #1: Misdiagnosing Industry Changes, we explained recession life cycles and the imperative to make a proactive move despite a downturn. One of the quickest and most effective ways to inject positive momentum during a low point in the cycle is grabbing market share at the bottom or just as it begins to rise.
Putting It into Action
An international manufacturer we recently had the pleasure of guiding through this process was hoping to grow through acquisition by doing just this: picking up smaller, regional producers with capabilities and client relationships missing from their organization. With our comprehensive blueprint, the buyer was able to enter new markets immediately and bring on competencies that otherwise could have taken years and greater expense to figure out.
A seasoned talent force who will provide continuity in the customer relations pipeline added to the package. These are the people who know their products inside and out and can further leverage that knowledge into the buyer’s existing markets. Ultimately, the international firm got a jump start on enhanced revenue streams sooner rather than much later. And you can too!
Destined is here to help you assess your acquisition readiness. Don’t let another day slip by wondering if your organization is in a position to act on opportunities in your industry. Contact Chris Andersen to discuss more. Enjoy our next article in the series Opportunity #4: Meeting the market where it is.