To some degree, companies and start-ups can grow on their own, naturally, using internal strategies of building capacity and increasing marketing and sales. However, to achieve greater growth – to reach the “next level” – companies often need to combine organic growth with inorganic growth, and explore external strategies like acquisition.
Acquisitions can provide immediate top-line and bottom-line growth, which is especially critical if there are multiple outside investors who are very focused on the ROIE (Return on invested equity). Acquisitions can also provide geographic expansion to support larger growing customers and add enhanced capabilities, services, and offerings. And, if integrated effectively, acquisitions can create synergies that will significantly improve the bottom line. To accomplish both organic growth and to position themselves for inorganic growth through acquisitions, companies must have the following elements in place.
Access to capital. Before focusing on external growth, it is imperative to ensure teams are “block and tackling” well internally (i.e., collecting receivables and turning the inventory). The bank isn’t going to loan money based on questionable assets, so a healthy and clean balance sheet is a must. Smart acquisition candidates want to merge or partner with companies that are poised for growth.
Infrastructure. Another key component is a solid infrastructure. An acquirer will be looking not just at a company’s financials, but at its capacity and best practices. It’s important to make sure internal systems, including CRM and enterprise resources for business data and management, are fully established and scalable.
Documentation. Another necessary element is having the proper documentation in place for all processes and procedures. In any merger or acquisition, training and continuity of services delivery and execution is essential to meeting stakeholder expectations and profit goals. Complete and comprehensive documentation is a key component to successful “behind the scenes” integration.
Leadership. Finally, company owners must have the appetite and stomach to pursue an acquisition strategy and hold the sales team accountable for its numbers. Does the sales and management team have the skills to deliver results today? Creating a solid business plan built on accountability can help in evaluating the sales and management team and testing its skills and bandwidth. Further, reviewing P&L reports can provide great insights into current performance and expectations. If sales and management is not at the level it needs to be, key leadership positions in the field and at corporate can often be filled through the acquisition.
Having these elements established can help companies position themselves for acquisition, and drive business growth more effectively than through organic strategies alone. At my former employer, we were able to integrate acquisitions into our systems, processes, and methodologies in 90 days or less. Therefore, we were poised to achieve synergies and create cross-selling opportunities between the combined organizations. A quality M&A advisor with industry knowledge can evaluate your company’s status and guide you to the next level.
Steve Pomeroy is the founder of Big Change Advisors, a unique M&A consulting firm in Los Angeles that helps businesses achieve big goals while making a big impact on society. To request a free consultation, contact us.