How the different growth stages affect the way a business is run

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Buy-side M&A – Identifying the growth stages of a healthy target acquisition

Are you looking to experience business growth through acquisition? Do you have your entrepreneurial sights fixed squarely on a company that, through a merger, could add incomparable value to your brand or business’s standing in the market you occupy? It’s a wonderful position in which to be – the stage in your business that now demands the type of growth injection that buying the right company can bring. But like most processes in business, it pays to do your diligence on any and all potential target acquisitions, to ensure not only the right fit, but the best investment.

So, you’re looking to buy a business, but let’s not be hasty. Rather, let’s talk about looking into a business’s growth stages, and where your target business is in that cycle. Here, we’ll identify the growth stages that, if mostly in place in your target’s lifecycle, are a healthy indication that said target is well-run, and so likely to be a beneficial investment.

Early-stage business

This is the stage where a business is still looking to get their name out there, hiring, establishing a culture, and taking risks. So, unless your target business is winning with a revolutionary product or service, or making significant waves from the very start, you may not be wanting to acquire an early-stage company. However, having said that, depending on how quickly growth comes, you still may want to keep an eye on your target in this phase, until it becomes a little more mature. After all, there’s a reason why that business piqued your interest.

Growth

These are all technically growth stages, but this one demonstrates a business’s ability to serve a market particularly well – and has a track record of retaining customers and offering new products or services. And, in detailed due diligence, you’ll be able to spot the strengths and risks of the business. How? Well, simply the data will show you how the company is performing versus its peers. Market share and customer base is growing. Revenue is increasing. This is an exciting stage for a business, and a great point at which to possibly acquire such a company. Just remember, momentum needs upkeep, so keep in mind that:

  • Resources must continue to be used effectively
  • Capital must be maintained to meet financial obligations in growth
  • Goals for continued growth must be realistic and strictly adhered to

If these points are being maintained, even in rapid growth, your target is under good stewardship.

Maturity

This is the stage that is the most attractive for many an intrepid acquirer. Here, a business has an established presence – brand awareness, strong cash flow, the experience and agility to adapt and solve issues. In fact, as long as the business doesn’t rest on its laurels and become stagnant, here is where, with acquisition, you may absorb its abilities, customer base and market standing, most seamlessly, and achieve that growth you seek.

Again, do the part of due diligence that unpacks market standing and performance. If the numbers are stagnating, your target’s leadership may be losing the wherewithal, or indeed motivation, to keep it running well.

Renewal

The renewal stage is often coupled with the more ominous reality of decline. With many years of consistent growth, for most businesses a modicum of decline is inevitable. It’s often at this stage, though, that an owner may want to look to sell, so if your target is here, this could be your way into a deal where you can negotiate a better price. But again, remember the due diligence. Decline doesn’t have to mean going out of business, but it will still all be made clear by the business’s numbers in this phase.

Furthermore, an established business is still most likely to have loyal customers, knowledgeable employees and products or services – though each may need to be reinvigorated. After all, it’s made it this far– how else would it have grown to this stage? But it’s here that it may not be continuing that growth pursuit, perhaps because of tougher competition, changes in the market affecting demand or even a shunning of new technology. Regardless, it’s an established entity, ready for renewal – if you can see the potential, acquire away.

And Destined is here to help you find that well-run business to acquire. Our entrepreneurs have been on the buy-side and sell-side of acquisitions, and they have the eye for businesses that have the potential to be valuable merger candidates, whatever phase of growth they’re in.

So, click here to find out more, and let’s connect.

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We hope you enjoyed reading this blog post.

If you want any of our team members to reach out to you, just book a call.

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