Will an Acquisition Help or Hinder Your Business?

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An acquisition could increase the size and profitability of your business overnight. It might allow you to take advantage of new economies of scale, or move into new areas. You might be able to acquire a bigger and better customer base, or strengthen your management team.

But an acquisition can also bring problems, draining financial and management resources from your original business.

You need to work out whether the acquisition will add value to your business, after making realistic allowances for all the hidden costs. To be successful, it will need to bring a number of benefits to your business. This briefing covers:

• The arguments for making a business acquisition.
• How to use an acquisition to expand your business.
• How to use an acquisition to reduce costs and risks.
• Acquisition pitfalls and how to avoid them.
Defining your aims De
Acquisitions are more risky than organic growth.

Be clear about what you need, and what you expect an acquisition to do for you, before investigating possible takeovers.

1.1 What are your strengths? Can you complement them? Can you afford to risk weakening them?

• How good are your employees?
• How good are your products, your market position and your market share?
• Do you have financial muscle?

For example, money in the bank, or shares in your own company which can be sold.

• Do you have advantages in technology or production processes?

1.2 What are your weaknesses, and how could you fix them?

• Is your market position shaky?
• Are your finances overstretched?

Are your overheads taking too high a proportion of your income?

• Do you have any management weaknesses?

1.3 Analyse your opportunities, and how you might be able to take advantage of them.

• Do you have a solid marke...

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• For example, you might not want (or be able) to buy the company that owns the brand. But you might be able to buy a company that holds a licence to use it.

If you offend the brand owner (eg by threatening to compete), you may still be denied the use of the brand.

B. Your ambitions may be blocked by public policy restrictions.

• For example, you may not be able to get planning permission for an outlet where you want one. But you may be able to buy a business already operating there.

My Opinion

“Always consider whether you have sufficient management resources to identify, negotiate, finance, manage and integrate an acquisition.”
Cobalt Corporate Finance

“Don’t forget the ‘invisible’ costs of an acquisition. The time spent on searching, researching, evaluating, negotiating and fund-raising might be better spent on improving and growing the original business.”

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