What is an acquisition strategy and why do businesses need one?
Acquiring a business for growth, isn’t like shopping at the supermarket. You can’t simply stroll a few aisles, and weigh up businesses for ripeness, as you would a piece of seasonal fruit. The process demands, in fact, deep strategic thinking, planning, and a vision for the future.
So, an acquisition strategy, is a plan of purpose – what is the acquirer trying to achieve both within the business and in the market? Without the empirical research and sound rationale that comes baked-in to the very core of all types of acquisition strategies, deals inevitably fail to deliver the desired results.
So again, what is the acquiring business trying to achieve? What are the goals? Businesses looking to acquire, that define this first, can then begin to strategize. Let’s detail the three most common acquisition strategies.
The three most common acquisition strategies
Acquisition strategies are highly effective as the foundation to a deeper, logic-driven documented approach to acquiring a business.
Here are the three most common, from which to build a value-adding, successful merger proposition:
Strategy 1: To benefit from a target business’s market standing and growth
This one is powered by a concept long seen as a critical source of value creation in mergers and acquisitions – economies of scale.
If one significant industry player looks to acquire another, the idea here would be to essentially absorb the latter’s capabilities and infrastructure within the market. And what this is, is a cunning strategy toward lowering costs through economies of scale – especially if a larger company acquires a smaller one.
A good example of this could be found in the motor industry – if one large car manufacturer merges with another they can essentially share platforms and save costs on producing cars for their shared market.
Strategy 2: To absorb a target business’s capabilities and knowledge in the market
This one is akin to simple biology – one organism absorbing another to benefit from its strength and success.
This strategy essentially allows businesses to save on training, save on new software, and of course, become the owners of the intellectual property that often comes with integrating with a pioneering business entity in the trade. Because of a merge of this kind, the acquiring business is then able to own an increased operational and influential stake in the market.
Strategy 3: To improve a target company’s performance in the market
This is a very popular value-creating acquisition strategy – a buying entity acquires a business with a solid standing in the market, and drastically cuts costs to boost margins and cash flow.
This can result in a potential 50% increase in a business’s value – if said business has a 5% operating profit margin, reducing its costs from 95% to 90% grows the margin to 10%.
How to choose the best acquisition strategy for your business
Again, there’s no playbook here, just some strategies that will benefit your business goal and vision when planning an acquisition.
So, perhaps a better line of questions would be, how do I determine my readiness for growth? How do I identify the right type of acquisition?
That’s where Destined comes in. We have a simple process for you to provide that solid foundation that will help you define your business goals, and thus your business acquisition strategy.
Here’s how it works:
- What – using our own mantra of Chart-Propel-Savor, we’ll help you determine your growth readiness
- Why – we’ll help you analyze the pros and cons of an acquisition opportunity, to make the best strategic decision
- How to – we’ll help you make sure your competencies match the growth plan outlined in your acquisition strategy, and we’ll identify the right acquisition for you
Again, there’s no set best practice for acquisition success. There’s always a better plan, though. Destined are your strategic ally on the road to a beautiful merger and resounding continued success in mergers and acquisitions. So, let’s connect.
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