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The pros and cons of growth by acquisition.

Organic growth, though low risk, can rely heavily on the growth of the overall market, taking the control of your business growth out of your hands. As an ambitious entrepreneur, you may seek a more rapid approach.

Acquisition allows you to accelerate your growth plans by acquiring target businesses, to expand and grow revenues and profits. However, it can be risky if you let the weight of the transaction distract you from your business-as-usual operations, or if you fail to carry out the required due diligence on the target business and end up battling endless red flags. To support you with your decision on whether to grow your business by acquisition, we highlight the key advantages and disadvantages below.

Advantages

Timing

Acquiring an already fully functioning business is normally a much faster process than reaching that position yourselves. It provides you with the chance to acquire resources, skilled staff and additional clients, not currently held by your company. You’ll also acquire your target business’s brand reputation, which is a valuable asset that can help to increase the awareness of your own brand and reduce the risk of new product development in future. 

Improved results

Your shareholders may have grown impatient waiting for the slow burn of organic growth, which is not meeting their expectations as quickly as they’d like. Acquisition often results in significant financial gain with immediate increases in revenues and profit, helping to satisfy your shareholders demands for return on investment and even potentially attracting further investment to fund future growth. 

Market share

Acquiring a business in your existing market can significantly build your market presence and reduce competition. If you’re struggling to compete, aligning your existing market synergies with your newly acquired business can reduce competitor capacity and give your business the competitive edge it needs to take over. 

Disadvantages

Rising costs

The costs incurred when acquiring a business can escalate rapidly if you proceed without seeking professional advice. There is often snagging around the transaction mechanics and the Sales and Purchase Agreement (SPA), which can cause unnecessary delays and exceeding costs, especially in the situation of a hostile takeover bid. 

Risk

Without professional due diligence support, you run the risk of acquiring a business that doesn’t perform as well as you expect it to, and you’ll be responsible for fixing any significant red flags that the new business brings with it. There is also the risk of integration issues, where there are clashes between culture and the businesses may not merge as well as you’d hoped!

Distraction

Undergoing an acquisition is likely to be very time consuming for both you and your Finance Director. Any challenges or extended timescales can add further distraction and you may find it difficult to maintain control over your existing responsibilities while also trying to execute a successful transaction.

Key takeaway

To combat the risks and maximise the potential outcome of an acquisition, we recommend that you seek professional advice before getting started. This support will help you to identify the right target business and expose any red flags before they cost you time and money, and also help to smooth the transaction and prevent delays due to inexperience or the lack of specialist advice. 

How we can help

As an experienced acquisition adviser, we have an in depth understanding of the process and can quickly identify any potential issues before they affect the transaction. We often act as a negotiator to ensure the process is as smooth and fair as possible, and can help to manage shareholder expectations with the preparation of a fully integrated financial model.

For more information, or for advice tailored to your business, please get in touch.

Due diligence advice
Due diligence advice

Carrying out due diligence is a key part of the acquisition process. Get in touch for more information or to discuss your requirements.

About the author

Alex Judd

+44 (0)20 7556 1457
judda@buzzacott.co.uk
LinkedIn
Due diligence advice

Carrying out due diligence is a key part of the acquisition process. Get in touch for more information or to discuss your requirements.

Acquisition advice
Acquisition advice

Your road to purchase can be long and bumpy, so it makes sense to consider more than one course of action. Get in touch for advice tailored to you.

About the author

PJ Walters

+44 (0) 20 7710 0367
waltersp@buzzacott.co.uk
LinkedIn
Acquisition advice

Your road to purchase can be long and bumpy, so it makes sense to consider more than one course of action. Get in touch for advice tailored to you.

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