CEO Advisor Newsletter October 2020
The Benefits of Growth Through Acquisitions
For small and mid-market companies like yours, finding the right acquisition target takes focus, commitment and expertise. Finding great acquisition targets also requires a disciplined approach, experience, time and finesse.
The benefits of making opportunistic acquisitions include:
- Increasing Revenue and accelerating growth, while acquiring badly needed technology, products and services.
- Acquiring needed management team members and industry expertise to enable future growth.
- Adding to your programming/development team with specialized expertise.
- Adding Revenue and Gross Margin, while minimally increasing Overhead Expenses to further increase Net Profits.
- Increasing the value of your business by acquiring a business at a 1X or 2X Revenue multiple and combining it with your 3X or 4X Revenue multiple business making the acquisition accretive immediately.
- Borrowing the money for the acquisition from a bank at 6% interest and gaining a 20% return annually.
- Acquiring a company that has specific strengths that your company lacks, such as a company with a strong national sales team or an international sales channel.
Implementing an Acquisition Process
Strategic acquisitions take a real commitment, but are doable by most any company given the right team in place, including a corporate/transaction attorney, tax attorney/CPA and a M&A advisor to initiate and manage the entire transaction process.
Most small and mid-market companies that pursue acquisitions on their own miss real opportunities due to a lack of a process and experience. Many companies tend to overpay so a defined, disciplined process with a seasoned M&A advisor is extremely important and will save your company a substantial amount of time and money.
Here are the most important steps to develop and implement with your M&A advisor leading the initiative:
- Define your acquisition strategy considering the points below
- Define your investment criteria and budget
- Build the acquisition target list
- Begin the outreach to targeted companies
- Gather information on interested parties
- Secure conference calls and meetings to better understand the business and the management team
- Gain additional information to compose a Letter of Intent
- Negotiate the Letter of Intent
- Perform Due Diligence to gain detailed information about the target company
- Renegotiate certain aspects of the LOI, if needed
- Draft and negotiate legal contracts
- Post-acquisition integration
Focus on the Strategy
If you make the decision to focus on highly strategic, opportunistic acquisitions, you can greatly accelerate your growth, profits and value of your company, so focusing on the acquisition strategy is a key aspect of the process. Here are some key issues to consider:
- What is the maximum size company you are comfortable acquiring?
- What is the minimum size company you might acquire? Buy too small and you'll incur a high relative cost to getting a transaction done.
- What is the range of EBITDA you will target?
- What are the Revenue and EBITDA multiples you would expect to pay in your industry?
- Do you have a minimum Net Profit requirement for the target company?
- Do you have a minimum Gross Profit Margin requirement for the target company?
- What types of synergies do you expect from acquiring a company in this industry segment, product/service, or geographic region?
- What technology, product or service will be the primary focus of your acquisition?
- What geographic expansion do you want to achieve from the acquisition?
- What technologies are compatible or incompatible as part of your acquisition search?
- What management positions, if any, do you seek out from an acquisition?
- Are you interested in eliminating a competitor, while acquiring customers for growth?
- What is the acquisition team (internally and outside advisors) that will be involved in the acquisition?
- What are the sources of funds to acquire companies with? Banking relationships? Internal funds? Private Equity Firm relationship?
CEO Advisor, Inc. has the expertise and experience to guide you through this exciting process to grow your business to the next level. Contact Mark Hartsell, MBA, President of CEO Advisor, Inc., for a free initial business consultation at (949) 629-2520, by mobile phone at (714) 697-3370, by email at MHartsell@CEOAdvisor.com or visit us today at www.CEOAdvisor.com for more information.