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Types of Successful Business Acquisition Strategies

Marsha Lewis
Director of Marketing at DealRoom
Marsha Lewis
Director of Marketing at DealRoom

Unfortunately, there’s no easy way to make successful acquisitions. Just like other standard business practices, some acquisitions are good, and some are bad.

Every purchase needs to have a well-planned logic. Since there isn’t an easy way that can lead to success, start by looking towards a profitable union.

When thinking of investing in another business, there are precise strategies that can bring value.

We at DealRoom help many companies organizing their M&A process and here are seven business acquisition strategies that will launch your company towards success.

Types of business acquisition strategies

  1. Review and improve the company’s target performance
  2. Increase the Exposure of the Targeted Company’s Products
  3. Exploit a Company’s Ability to Grow Based on Its Specific Industry
  4. Consolidate and Cut Out Excess Capacity
  5. Finding a Business That Offers Valuable Technology or Skills
  6. Pick a Business That Has the Ability to Grow Right from the Start
  7. Consolidating Will Modify the Way Your Competitors Behave

1. Review and improve the company’s target performance

A successful business strategy that can help you create value is to upgrade your business’s target performance. All you need to do when you buy a business is to cut costs drastically to increase cash flow and profit

Sometimes you will also have to monitor specific actions to accelerate revenue growth. Companies that follow this strategic approach are sometimes the most prosperous.

When speaking of private equity acquisitions, the profit percentage jumps up to 2.5% more than those with similar firms at roughly the same time.

All this without investing extra along the way. Therefore, multiple acquisitions ended up having higher operating income margins.

Keep in mind that boosting a company’s performance using low margins and low ROIC is better than fixing one with high margins and return on invested capital (ROIC). Let’s say your target company has 5% operating income margins.

If you reduce the firm’s expenses from 95% to 90% of income and increase the margin at 10%, you’ll potentially gain 50% in its value.

2. Increase the Exposure of the Targeted Company’s Products

Small businesses that have innovative products sometimes have problems in reaching a relevant market.

For example, small pharmaceutical firms don’t have the large sales systems needed. They can’t establish the essential relationships with doctors to get their products advertised.

More prominent pharma companies frequently acquire smaller companies and use their vast marketing networks to promote and sell their products.

Given the fact that the type of industry isn’t that important, this method can be used in all kinds of industries.

Identifying ways to cut expenses and lift margins when targeting the right company can bring you profit increase without investing furthermore or making acquisitions.

3. Exploit a Company’s Ability to Grow Based on Its Specific Industry

Businesses benefit from economies of scale once their product gets more profitable. Economies of scale can be achieved by expanding output and cutting expenses.

Experts regularly mention them as the primary source of growth and profitability in mergers and acquisitions (M&A).

If you decide to use economies of scale, make sure you proceed with caution and keep in mind that more prominent companies are already running at scale.

Merging two large companies that use the same strategy can lead to reduced unit costs.

4. Consolidate and Cut Out Excess Capacity

If you operate in a fully grown business area with extra capacity, acquiring a competitor can be a dangerous decision to improve your business.

When you buy a rival company to expand yours, you can reinforce its status if you discover that you have to cut down the supply to accelerate demand.

A cut in excess can also be observed when acquiring a company with more indirect consolidation in sales and R&D, which can add significance to your company. 

5. Finding a Business That Offers Valuable Technology or Skills

Nowadays, people use this acquisition strategy to make successful acquisitions.

All the big companies are doing their best to bring technology to their firm to get in the game and succeed.

Acquiring a company that has all the basic skills is also a delicate strategy. Building up these skills from the ground up when entering a new market can take time and cash so that acquisition can be a better accrual on investment.

6. Pick a Business That Has the Ability to Grow Right from the Start

Identifying a business with potential from the start and investing in it to help it grow is another intelligent acquisition.

This strategy can be used by a private equity investor and a private buyer with a good eye for a company with potential.

If you want to have a successful acquisition, make sure you choose a winning business from the very beginning.

Keep in mind that you need to have good expertise and also invest early to succeed.

7. Consolidating Will Modify the Way Your Competitors Behave

There is a possibility that your competitors will end price wars if you make an acquisition, which will sufficiently consolidate a business.

This strategy is challenging because consolidation hardly changes how pricing acts between competitors, except when the consolidation lowers the number of companies in the area of interest.

Even if that happens, new firms that come in can still put low prices to get a hold of a bit of market share.

Conclusion

These seven acquisition strategies are here to remind people who want to acquire that they need to plan ahead to reach their goals.

It is possible to expand and become successful when you buy a business, but only if you have a good plan and a calculated strategy.

If you follow these seven business acquisition strategies, you will be one step ahead of the competition.

Acquisitions will never be simple. That’s why you need to do them correctly.

Avoiding these essential steps might push you towards failure, so think smart and choose the right strategies for your future acquisitions.

dealroom


Unfortunately, there’s no easy way to make successful acquisitions. Just like other standard business practices, some acquisitions are good, and some are bad.

Every purchase needs to have a well-planned logic. Since there isn’t an easy way that can lead to success, start by looking towards a profitable union.

When thinking of investing in another business, there are precise strategies that can bring value.

We at DealRoom help many companies organizing their M&A process and here are seven business acquisition strategies that will launch your company towards success.

Types of business acquisition strategies

  1. Review and improve the company’s target performance
  2. Increase the Exposure of the Targeted Company’s Products
  3. Exploit a Company’s Ability to Grow Based on Its Specific Industry
  4. Consolidate and Cut Out Excess Capacity
  5. Finding a Business That Offers Valuable Technology or Skills
  6. Pick a Business That Has the Ability to Grow Right from the Start
  7. Consolidating Will Modify the Way Your Competitors Behave

1. Review and improve the company’s target performance

A successful business strategy that can help you create value is to upgrade your business’s target performance. All you need to do when you buy a business is to cut costs drastically to increase cash flow and profit

Sometimes you will also have to monitor specific actions to accelerate revenue growth. Companies that follow this strategic approach are sometimes the most prosperous.

When speaking of private equity acquisitions, the profit percentage jumps up to 2.5% more than those with similar firms at roughly the same time.

All this without investing extra along the way. Therefore, multiple acquisitions ended up having higher operating income margins.

Keep in mind that boosting a company’s performance using low margins and low ROIC is better than fixing one with high margins and return on invested capital (ROIC). Let’s say your target company has 5% operating income margins.

If you reduce the firm’s expenses from 95% to 90% of income and increase the margin at 10%, you’ll potentially gain 50% in its value.

2. Increase the Exposure of the Targeted Company’s Products

Small businesses that have innovative products sometimes have problems in reaching a relevant market.

For example, small pharmaceutical firms don’t have the large sales systems needed. They can’t establish the essential relationships with doctors to get their products advertised.

More prominent pharma companies frequently acquire smaller companies and use their vast marketing networks to promote and sell their products.

Given the fact that the type of industry isn’t that important, this method can be used in all kinds of industries.

Identifying ways to cut expenses and lift margins when targeting the right company can bring you profit increase without investing furthermore or making acquisitions.

3. Exploit a Company’s Ability to Grow Based on Its Specific Industry

Businesses benefit from economies of scale once their product gets more profitable. Economies of scale can be achieved by expanding output and cutting expenses.

Experts regularly mention them as the primary source of growth and profitability in mergers and acquisitions (M&A).

If you decide to use economies of scale, make sure you proceed with caution and keep in mind that more prominent companies are already running at scale.

Merging two large companies that use the same strategy can lead to reduced unit costs.

4. Consolidate and Cut Out Excess Capacity

If you operate in a fully grown business area with extra capacity, acquiring a competitor can be a dangerous decision to improve your business.

When you buy a rival company to expand yours, you can reinforce its status if you discover that you have to cut down the supply to accelerate demand.

A cut in excess can also be observed when acquiring a company with more indirect consolidation in sales and R&D, which can add significance to your company. 

5. Finding a Business That Offers Valuable Technology or Skills

Nowadays, people use this acquisition strategy to make successful acquisitions.

All the big companies are doing their best to bring technology to their firm to get in the game and succeed.

Acquiring a company that has all the basic skills is also a delicate strategy. Building up these skills from the ground up when entering a new market can take time and cash so that acquisition can be a better accrual on investment.

6. Pick a Business That Has the Ability to Grow Right from the Start

Identifying a business with potential from the start and investing in it to help it grow is another intelligent acquisition.

This strategy can be used by a private equity investor and a private buyer with a good eye for a company with potential.

If you want to have a successful acquisition, make sure you choose a winning business from the very beginning.

Keep in mind that you need to have good expertise and also invest early to succeed.

7. Consolidating Will Modify the Way Your Competitors Behave

There is a possibility that your competitors will end price wars if you make an acquisition, which will sufficiently consolidate a business.

This strategy is challenging because consolidation hardly changes how pricing acts between competitors, except when the consolidation lowers the number of companies in the area of interest.

Even if that happens, new firms that come in can still put low prices to get a hold of a bit of market share.

Conclusion

These seven acquisition strategies are here to remind people who want to acquire that they need to plan ahead to reach their goals.

It is possible to expand and become successful when you buy a business, but only if you have a good plan and a calculated strategy.

If you follow these seven business acquisition strategies, you will be one step ahead of the competition.

Acquisitions will never be simple. That’s why you need to do them correctly.

Avoiding these essential steps might push you towards failure, so think smart and choose the right strategies for your future acquisitions.

dealroom


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