The vast majority of companies would like to grow and become more profitable—but achieving that goal is much easier said than done.
Even the most effective sales and marketing campaigns can take years to pay off. Meanwhile, expanding into a new area or offering a new product can be a highly risky endeavor, particularly if there are already competitors present in that space.
In the face of these problems and questions, more and more organizations are choosing to acquire other companies in order to drive business growth.
Acquisition as a strategy to support business growth is an idea that’s worth serious consideration. It’s by no means an instant remedy—an M&A deal can take between 6 to 12 months, or even longer, to pull off, plus the time that it takes to start seeing results.
But if your business is flush with cash and doesn’t mind spending it, acquiring a company that’s operating in the space where you want to grow into could be the perfect solution.
M&A can be used to supplement business growth in ways such as:
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Expanding into a new market or region.
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Snapping up a valuable talent pool.
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Gaining access to new technology or intellectual property.
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Adding new products and services to your offerings.
According to management consulting firm BCG, there are six ways that companies can grow through M&A deals. Potential M&A targets include:
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Direct competitors in order to scale your business.
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Early-stage startups to hire new talent and increase your R&D potential.
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Companies with related products and services that easily complement your existing ones.
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Companies that have access to new geographical areas or new customer segments into which you want to expand.
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Companies in the same industry with a particular strength or eye-catching feature.
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Companies in totally unrelated industries that can help diversify your own business.
A streak of M&A activity to support business growth is a strategy that has been used to great effect in recent years. Just look at the case of Martello Technologies, a Canadian network software company. In 2018 alone, Martello had two high-profile M&A deals:
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In January 2018, Martello announced a merger with Elfiq Networks, whose SD-WAN network performance software would supplement the company’s existing services.
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In October 2018, Martello acquired the Dutch IT monitoring software firm Savision. According to Martello CEO John Proctor, the deal would give Martello “instant access to the European market.”
Depending on your organization’s size and strategy, M&A as a growth strategy may take different forms and have different objectives. Large companies need to ensure that an acquisition will have a meaningful impact on the financial metrics they’re targeting. Meanwhile, small and medium-sized businesses often consolidate for reasons such as revenue and expense synergies.
Nevertheless, there are challenges associated with using M&A to support business growth. Many M&A articles contain the often-repeated claim that the M&A failure rate is anywhere between 50 and 90 percent.
The reasons M&A deals fail include:
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A cultural mismatch between the two companies that prevents effective synergy.
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Difficulties with integrating the two companies in practice.
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Lack of proper communication between both parties before the deal is complete.
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Too much focus on the deal itself without thinking of a long-term strategy.
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Struggling to adjust to the additional complexity once the deal is complete, with new markets and customers to consider and more products and services to sell.
Successfully executing an M&A deal for business growth will require careful consideration of the current state of your business, as well as the growth opportunities that are realistically available to you. Answer questions such as:
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How are we currently positioned in the market?
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What are the geographical and customer targets for both companies?
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What opportunities will open themselves up to us as a result of this deal?
Another important consideration: with a few exceptions, most M&A deals will require capital, rather than stock. Unless it's a true merger of equals, all-stock deals are a relative rarity. Make sure that you have the cash on hand, or that you can obtain it through financing, before you consider M&A as a business growth strategy.
Want to learn more about M&A as a growth strategy for your business? Curious about the state of the tech M&A field? Check out “Trends in Tech M&A”, a webinar from SecureDocs and Ed Bryant, president and CEO of Sampford Advisors.
