Andrew Scivally, CEO, Learn ELB – helping organizations create better learning experiences for their employees and customers.
Acquisitions can be a powerful way for a company to grow. Actually all sorts acquisition records were broken in 2021. And there’s a good reason for that. Buying another company gives you new resources, opportunities and ideas. You can work with a new team of talented experts to expand into an entirely new customer base, refresh your brand and show momentum. Clearly, there are many reasons to pursue acquisitions, especially when you find a business that complements your own company’s strengths.
Unfortunately, even with all the benefits of acquiring a business, the Harvard Business Review reported that between 70% and 90% (registration required) of acquisitions failed in 2011. There are several complex reasons for this fact, but I think many of the problems companies face could be avoided if they acquired the right brands. There is a strategy for acquisitions that goes beyond rapid growth.
My company, ELB Learning, has acquired six companies in the last two years and has more acquisitions in the works. There is a pattern to what we do, who we work with and why we are so successful. The selection process for the companies you target should make sense for both brands involved. I believe that being smart and strategic up front is the foundation for a successful acquisition in the long run.
That’s a nice philosophy, but how do you translate the desire to find a good candidate for your company to take over into a viable plan? Using a defined set of criteria, you can clearly evaluate potential candidates and refine your list until you’re confident that the company you’re buying is a good fit for you.
It’s important to take the time to really think about what your business needs and to identify the potential pitfalls of an acquisition to adjust your criteria for choosing partners. That said, here are the top four indicators I look for before starting an acquisition process.
1. Stable management
A company cannot run without leaders, but there is more to it. You may not always retain the leadership of a company you take over, but whether they stay or go, their legacy will surely live on.
I’ve noticed that companies with a stable management team often have a better culture, less turnover, more engaged employees and a stronger vision for the future. Essentially, anything of value you buy is influenced by the leaders across the company.
If the leadership team has already checked out and is only looking for an exit strategy, the company they are so eager to leave will likely reflect that. Instead, look for companies with passionate, engaged leaders who lead everyone to a common goal.
2. Expertise
Whatever industry you are active in, expertise is a valuable commodity. There will always be someone who knows more than you about different aspects of your business. Companies with a proven approach in your field probably have something they can teach your existing team.
Individual experts can be a good reason to take over a company, but there is often no guarantee that a particular employee will stay once the company is bought. Instead, look for collective expertise: ways to run the business, communicate with customers, innovative offerings, and other things you can use to advance your own vision.
3. A large customer base
Finding customers is one of the most difficult and expensive aspects of doing business. If you’re acquiring a brand new company, even if they have the most innovative technology or service idea you’ve ever heard of, you could be spending a significant amount of money letting people know about it.
In my experience, it’s better to find a company that already has a large and loyal following. Focus on a smooth transition, maintain a high level of service, and add value to those customers so you can retain enough of them to make the acquisition worth your time, money, and effort.
4. Something new
When deciding whether or not to buy a company, I look for companies that align with our values and vision, but operate in a space where we are not yet dominant. What’s the point of paying a lot of money for something? You already have? Sure, there’s something to be said about shutting down the competition, but for me; I want to see something new.
This doesn’t necessarily mean new technology; it just means something beyond what my company already does and the people it already serves. I want to see an opportunity to expand, either by offering something to our customers that we didn’t have before or by offering what we have to a new set of customers. Both are winning strategies.
Acquisitions are unlikely to succeed if the acquiring company and the acquired company are not a good fit. It takes work and strong leadership to bring two companies together into a new, cohesive whole, but starting with the right foundation can go a long way toward achieving that goal.
businesskinda.com Business Council is the leading growth and networking organization for entrepreneurs and leaders. Am I eligible?
Janice has been with businesskinda for 5 years, writing copy for client websites, blog posts, EDMs and other mediums to engage readers and encourage action. By collaborating with clients, our SEO manager and the wider businesskinda team, Janice seeks to understand an audience before creating memorable, persuasive copy.