Should your company be on the acquisition trail?
Written by Mark Ostryn, Mergers & Acquisitions Facilitator, LINK Sydney

You’re in a dynamic, fast growing industry, but achieving organic growth solely through reinvesting free cash flow, may not be the best strategy.  You need to grow faster, otherwise your vision may be captured by other, better-funded competitors or new entrants.   Is acquisition an option?

Think more about the blue sky opportunity to be captured and how best your own company can capture them.  Once you’ve a framework, you’re better placed to determine the type of company you need to acquire. Alternatively, you may find that organic growth, or growth through collaboration and strategic alliances is less risky or more profitable.

Here’s a list of 10 questions that you should be able to provide very detailed answers to before you head down the acquisition path:

  1. What are your key strengths, weaknesses, opportunities and threats?  In particular, what do you need to ensure your opportunities come to fruition?  Also how do you mitigate against threats to your business?
  2. Imagine the future of your industry.  How will it evolve?  How will customer tastes change, how will suppliers adapt to suit those change, what shifts are likely to occur in related industries, what new direct competitors are likely to emerge, how will customer needs otherwise be satisfied and what impact (if any) will government policy, technology or the environment likely to have?
  3. To what extent do you and your team have the right experience, skills and attitudes to capitalise on the opportunity?  Can this be improved, and what external skill sets might you need to contemplate bringing in?
  4. How will you make money from the opportunity?  How can you best develop this opportunity in a risk- averse way, then continue to capitalise on it by building and maintaining entry barriers?
  5. Review your customers buying process.  How does the customer make decisions, is your service a compelling purchase, how much does it cost to reduce and deliver the service, how much support is required and how easy is it to retain the customer?  What additional revenues or annuity streams can be obtained to improve cash flows?
  6. How would you strengthen your Value Chain and ensure optimal performance from manufacturers, distributors, imports and exporters, wholesalers and retailers?
  7. What are the strengths and weaknesses of your current competitors, what resources do they control and how could you potential co-opt potential or actual competitors by forming alliances or otherwise collaborating?
  8. What are your financial projections?  What cash flow issues do you have particularly pertaining to investing in capital or personnel, or customer or supplier payment terms?  How might these constraints hamper your growth?
  9. What alternative scenarios could take place as you implement your plan?  How would you cope with a best or worst case scenario where the initiative is more or less successful than anticipated?
  10. What is your eventual exit strategy?

Out of all these questions, perhaps the last is both the most important and the most challenging to answer.  This theme will be raised in part two.