Acquisition is a Better Way to Grow

It’s quite simple–the way to expand your business is through hard work. Keep your customers happy and market aggressively. In the end it comes down to old fashioned sales and marketing, and plenty of hard work. This is what most consultants, professors, and businessmen will insist. You’ll hear a lot of slogans and truisms like “there are no shortcuts to success.”

We’re certainly not about to claim that hard work isn’t a key ingredient of success in growing a business. But, in contrast to the traditional wisdom, there is a short cut to growth. Growth through acquisition, too often considered the exclusive domain of the largest of companies, is also quite appropriate for the small and midsize company looking to achieve rapid expansion.

Synergies Through Acquisition

The key to growth by acquisition is taking advantage of synergies: making 2+2=5. Growth through acquisition is a quicker, cheaper, and far less risky proposition than the tried and true methods of expanded marketing and sales efforts. Further, acquisition offers a myriad of other advantages such as easier financing and instant economies of scale. The competitive advantages too are formidable, ranging from catching one’s competition off guard, to instant market penetration even in areas where you may currently be weak, to the elimination of a competitor(s) through its acquisition.

Synergistic acquisition is not limited to buying direct competitors. We will also detail how small and mid-size companies can efficiently grow by buying related or complimentary companies. It is quite common for a company to buy another to take better advantage of each other’s distribution channels. For example, a candy manufacturer with several retail outlets, might purchase a specialty food mail order company. The buying company could then use the mail order company’s distribution channels to sell its candy. If it were a really good fit, it could also offer some of the mail order firm’s products through its retail outlets.

Another fairly common type of acquisition involves the purchase of a company in the same industry but in a different geographic area. Internet Service Provider companies, for example often buy ISP’s in other regions. Cost center elements like customer service and billing can be centralized to gain economies of scale through the dramatic increase in volume of business.

The catalyst driving many business acquisitions involve synergies. When companies are merged together, the whole is often greater than the sum of its parts. Synergies involving marketing and economies of scale, as pointed out already, are clear benefits. Also, there are typically opportunities involving production, volume discounts in purchasing, and reduced overhead expenses (as a percentage of sales).

The above is an excerpt from the book “Strategic Acquisition:  A Smarter Way To Grow A Small or Medium Size Company” by David Annis, Eugene Merfeld, and Gary Schine