We are often asked about using acquisitions as a growth strategy, as compared to growing organically. Many people are intrigued by the concept of an acquisition and what it can do to propel the business forward. While we think that private companies should include acquisitions as part of their strategy, we don’t think they should do so to the exclusion of organic growth.
An acquisition can be one of the most difficult things that a private company undertakes and it is fraught with risk – so tread lightly! An acquisition strategy can consume a great deal of management’s time without offering much in the way of benefit because so few acquisitions actually make it to the finish line. In order for the acquisition to make sense, the target must have the right fit and be available at a reasonable price. In our experience, a company must filter many potential deals to find the one opportunity that fits both of these criteria. This process takes a lot of time to do properly.
For these reasons, we think it is a better approach to have an acquisition strategy side-by-side with your organic growth strategy. The key is to be able to filter potential targets in a systematic way, so the process does not consume too much time and detract from your core business. We suggest developing a set of parameters for the target that can include things like size, location, line of business, and transaction size. If you can get clear on these parameters, the next step is to hire a buy-side M&A firm to locate opportunities for you to filter. Doing this will create plenty of opportunities and you may find that needle in the haystack that fits your criteria and is available at a reasonable price.
We would still urge caution here. Statistics show that most acquisitions are financial failures and the risk is very high, particularly if you have never done one before. Start small and don’t try to handle a transaction that is so large that you would risk your core business if the acquisition did not go well.
Mario O. Vicari is a director with Kreischer Miller and a specialist for the Center for Private Company Excellence. Contact him at Email.
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