Mike Owen’s viewpoint on expansion through acquisition
10/06/10
Acquisition, or a "buy and build", strategy can be good for
accelerating your business’ growth.
More and more Welsh businesses living through the downturn are
now adopting this strategy.
Is acquisition for you?
Businesses embark on the acquisition trail because they believe
it’s a cost-effective way of expanding their offer. If you’re
considering a "buy and build" strategy it could be to increase your
business’ knowledge base or your sales and distribution channels.
Acquisition may help you increase your market share and it could
diversify your business.
But the risks of acquisition can be greater than organic
growth.
Keep your eye on the ball
Too many businesses try to do it all themselves, which usually
ends in tears. Buying a stake in another business can be an
enormous distraction.
Get yourself good professional advice and find
the right adviser to project manage the acquisition.
Right time
I’ve previously talked about the downturn making many businesses
more cautious with their cash.
Despite this, we’re actually seeing more acquisitions. Strong
businesses are being approached with offers to increase their
portfolios as more of the weaker businesses are coming onto the
acquisition market.
It’s important to be realistic. Are you really ready to expand
through acquisition?
Right price
In less turbulent times I’d expect an acquisition deal to be
priced around 5 x operating profit. One thing we’ve seen recently
is reduced multiples with businesses being acquired for 2 -3 x
profit.
It’s a buyers’ market where the sensible businesses are weighing
up the opportunities before their competitors do!
What should you do now?
Have you done your homework?
- Have you found an acquisition opportunity at the right
price?
- Would acquisition really add value to your business?
If the answer to these questions is yes, it could be time to
share your thoughts with Finance
Wales.