SME’s and Acquisitions - 5 Important Considerations

SME’s and Acquisitions - 5 Important Considerations

Being a successful business means growing through continual improvement. Whether this means expanding a customer base, increasing revenue or profit, or diversifying service offerings, it all, in the end, comes down to growth.
 

As an enterprise, this can happen in two ways: 
 

• Organically, i.e., a natural progression that is scaled up through product, service or revenue; often linked (for better or worse) to market fluctuations

• Via Acquisition: the process of an enterprise strategically selecting and purchasing another business. 
   

Long the forte of vast companies, acquisitions are most recognised for their ability to make fabulously splashy headlines and solidifying an already large corporation's competitive advantage. 

As a business growth strategy, it is effective, but SME's are often skittish when it comes to embracing this approach, due to the significant financial outlay required and the risk that the return on investment won't match that initial outlay.

But acquisitions are not just for large businesses. Strategic acquisitions offer an alternative solution to the ever-present problem small business encounter: how to grow effectively and sustainably over time.

Acquisitions can solve problems and yield value for both the acquiree and the acquiring firm, and it is important to be certain that this is the right move for your business. Whether you are looking to increase your market share, boost your range of products and services, leverage synergies or reduce your enterprise's learning curve, there are some key considerations:

1. Are you Acquisition Ready? When growth is your goal, it’s logical to think about acquiring. A successful business acquisition starts so much earlier than the actual purchase. Ascertaining business readiness is the starting point.  A Harvard Business Review article suggests conducting a high-level analysis of current business state, critically assessing the internal and external conditions of your enterprise from data (ideally from the last 12-24 months). Clarify your potential, your shortcomings and map any improvements needed with timeframes.

2. What is the rationale behind the acquisition? Liking a business, their brand, or the people they employ is one thing, whether that same company fits with your enterprise's overall strategy is another entirely. Goaedhart, Koller, & Wessels, (2017) note that acquirers with the most successful deals know what they want going in; they have articulated and specific ideas regarding potential value creation. A strategic rationale usually conforms to one the following six archetypes: 

Ask yourself: What is your rationale? Does it support your overarching mission? 
 

3. Is your business on a solid financial footing? Acquisitions take time and money. And when all is said and done, the acquisition needs to generate enough revenue to make the process worthwhile. Take a temperature check of your current business; make sure your business is in a healthy financial place or you have strong investors, before even considering starting the process.

4. Is the business the right fit? Despite all the 'hard' details, i.e., Price, market positioning, value creation, etc, the success of an acquisition is often more dependent on the 'softer' details: alignment of enterprise cultures, leadership styles, continuous improvement intentions. These are essential things to suss out prior to acquisition. (Ashkenas, 2013), calls it ‘backward resource planning.’ Starting with the overall vision, and then reverse engineering it to define the criteria needed for this to happen - this can then be compared to the acquisition to see how it measures up.

5. Is there a third-party mediator? Negotiations are sensitive and can easily become testing; emotions can easily get in the way of objectivity. Surround yourself with your business sales team - team of professionals that can act for you - business brokers, accountants and solicitors are all there to make the process easier. Use them. If both parties (buyers and sellers) have to work together once the acquisition is complete (which is often the case), third parties can assist in facilitating this process. 

 A business acquisition can empower strategic growth, build enterprise value and create access to further opportunities. Joining forces with another enterprise is a powerful tool that can unlock future potential and yield value.

If you are a SME, and you feel like you have reached that stage, then acquisition could be your next big venture. Talking to a leading business sales specialist that engages with buyers and sellers on a daily basis, could be a critical step to making that leap.

Tags: buying acquisition small business

About the author

Erica Jones

Business Sales Consultant