Get expert advice on every topic you need as a small business owner, from the ideation stage to your eventual exit. Our articles, quick tips, infographics and how-to guides can offer entrepreneurs the most up-to-date information they need to flourish.
October 6, 2020
Here we’ve listed the pros and cons of acquiring another business that every founder should consider before signing a deal.
Acquisitions can prove effective when entering new markets, but you have to prepare the long-term plans, framework conditions and milestones to ensure that the products get to market faster. An acquisition can help you overcome market entry barriers and access an existing client base.
You can run a joint promotion, share advertising and combine purchases to stimulate customers’ interests in your shared industry. This strategy works well for retail or consumer goods and tech products and services.
You can add your competitor’s existing customer or client base to your own through acquisition, but make sure you streamline their operations and integrate them into your company. Acquiring competitors can also broaden your target audience by tapping new demographics that expand your company’s reach.
An acquisition can help you increase the market share of your company quickly. Growth through acquisition can help you gain a competitive edge in the marketplace and achieve market synergies.
Taking over other businesses can provide you with many benefits, such as acquiring new competencies and resources, rapid growth in revenue, access to R&D platforms and better equipment. Acquisition usually involves a complete buyout of the business, including its assets, manufacturing machines and workforce.
If your competitor operates in a different market or provides unique products or services, you can increase your revenue by acquiring it. The acquisition can also help you improve the long-term financial position of the company, which makes raising capital for growth strategies easier. You can also increase revenue by selling any assets of the acquired company which you don’t need.
| Talk to us about how outsourced business services can ready you for an acquisition. |
When a company acquires another organization, it also gains the efficiencies and experience of that company’s employees, which allows the business to benefit from their core competencies. Acquisition often helps you put together a new team of experts with fresh perspectives and ideas.
If you acquire a business that sells similar products, you can create economies of scale, which means lowering production costs. Thus, the risks and costs of new product development and competitive reactions decrease.
Taking over another business results in operational expansion for the buyer. This may include manufacturing plants, marketing channels, an experienced workforce or suitably located business premises.
While an acquisition can create substantial and rapid growth for a company, it can also bring some issues along the way, such as the following.
Perform an accurate cost and expenditure analysis of another company to make sure you aren’t going to increase your debt load. Also, analyze balance sheets, accounts receivables and payables, as well as inventory. If a company has too many liabilities, it might not be worth acquiring.
The costs of acquiring another company can be high and may lead to a loss. The returns from acquisitions may not be attractive, or assets may have a lower value than perceived.
The clash between the different corporate cultures may create a problem in managing resources and competencies. The synergies of two companies may also not match, or the companies’ objectives may even conflict.
By acquiring a firm, the buyer also purchases all potential negative attributes of a business. This can include incompetent staffers; a bad corporate image, product or customer service; lack of brand awareness; costly rental premises; underperforming production plants; unfavorable locations; and operational or management problems.
Tasnim Ahmed is a content writer at Escalon Business Services who enjoys writing on a multitude of subjects that include finops, peopleops, risk management, entrepreneurship, VC and startup culture. Based in Delhi NCR, she previously contributed to ANI, Qatar Tribune, Marhaba, Havas Worldwide, and curated content for top-notch brands in the PR sphere. On weekends, she loves to explore the city on a motorcycle and binge watch new OTT releases with a plateful of piping hot dumplings!
We provide you with essential business services so you can focus on growth.
