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Six strategies to help your business grow: Making acquisitions

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An obvious way for any company to expand is to take a look at other businesses and consider how well they could complement what you have in place at the moment. As we mentioned in a recent article, acquisition can be an exit strategy for most business owners, so if you’re in a position where you’re ready to invest in other companies, you’re sure to find options.

Why make an acquisition?

This is a question to ask yourself before you commit to anything. Some common reasons might be:

- to increase your share of the market
- to spread your costs across more than one company
- to increase your resources and knowledge and become a business offering more products and services (see our article on diversification)
- to defend your business against a competitor you see as a threat

These are all valid, but it’s important to rule out alternatives to acquisition before proceeding. For example, could headhunting staff from competitors help to bring new ideas and people power to your business just as effectively? Rather than nullify the threat of competitors, could you learn from what they’re doing and use it to diversify your business?

What are the types of acquisition?

Acquisition can take three main forms:

- Single acquisition – this involves absorbing the most valuable operations and assets of a business, and simply not using anything that is either not needed or is already in place
- ‘Split and sell’ – in this type of acquisition, a business is purchased with the specific intention of using valuable assets and selling anything not required
- Affiliate acquisition – this is when companies used to market a parent firm are bought out, meaning the parent company retains control of the market in question

Also, remember the difference between a merger and an acquisition. A merger serves the interests of both businesses involved in the deal by forming a larger and stronger company, whereas an acquisition is made to strengthen the acquiring company only.

What are the risks involved?

There are obvious financial pitfalls to acquiring businesses, with the time of purchase being one. There are arguments for acquiring during both positive and negative economic periods, but it’s always essential that due diligence is carried out and businesses are not bought out on a whim. Strategic errors are common too, with businesses often acquiring firms that turn out to be of little value to them.

Why not speak to Sollertia to see how savvy management and accountancy outsourcing can help you make the best possible decision?