Acquisitions do not always have to involve an act of takeover, or even the usual concept of merging operations. A tailored approach can lead to lower risk, and higher growth. By TOM McKASKILL.
By Tom McKaskill
Why is it that we always think of acquisitions in terms of integration? If you examine the available literature, it is heavily biased towards large scale mergers and integration issues.
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The fast growth company that has little acquisition experience and doesn’t have 15 staff in their M&A department will find little useful guidance from such literature.
Too often this one-size-fits-all model of acquisitions misleads the growth-minded entrepreneur to believe that acquisitions are not for them.
But there are in fact simpler forms of acquisitions that are ideally tailored to the high growth SME.
One of these I call “what can I offer?”
Put yourself into the shoes of the high growth entrepreneurial firm. The characteristics of such a business will almost certainly involve strong competitive advantages, normally based around some form of intellectual property. Often they have global markets, access to external private equity and more opportunities than they can cope with.
With such prized assets, they can look at a potential acquisition as a way of leveraging their IP, market reach, excess demand and infrastructure. Instead of merging with a target firm, their objective might simply be to make the acquisition more productive and profitable by putting assets and capabilities into it.
Developing an acquisition strategy with a “what can I offer” approach presents a very different planning scenario compared to the norm. By taking inventory of your own business, and identifying those assets and capabilities that can be readily transferred to an acquisition, can lead also to a low-risk growth strategy.
You might have a range of IP that can be leveraged by another firm. This might include patents, copyright, brand, trademarks and deep expertise. You might have sophisticated performance setting and evaluation systems, and good management disciplines that could be implemented to improve overall productivity and focus of an acquired firm.
If you have excess demand, you could divert this demand to improve the profitability of the acquired firm. Basically, what you could do is take something that has little incremental cost to transfer and find a target firm where it can substantially improve its growth and profitability prospects.
Most high growth firms are stretched to the limit. They really need to limit their risk exposure on an acquisition because they don’t have the management resource to sort out problems. But if they can take on an acquisition where their involvement is limited, they can grow through such a strategy. The ability to quickly enhance the growth and profitability of an acquisition also allows them to target better performing businesses, those that already have good management, internal systems and are free of problems. They can afford to pay a premium for such firms as their upside through their own involvement can readily produce a healthy return on their investment.
The level of desired intervention into the new acquisition can be built into the acquisition criteria. Thus firms with limited capacity can seek out firms that are able to leverage inputs from the new owner with little assistance from the buyer. This enables growth through acquisitions but doesn’t come with the normal baggage associated with traditional merger-based acquisitions.
Simply ask the question: “What can I offer?”
Tom McKaskill is a successful global serial entrepreneur, educator and author who is a world acknowledged authority on exit strategies and the Richard Pratt Professor of Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia.