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Business Acquisition in a Nutshell
Business Acquisition refers to a strategy or process in which one firm buys all or part of another company’s stock or assets to increase market power, mitigate risk, cost reduction, and diversify. It is conducted to control and build the target company’s stability while also catching its core competency synergy, which might be beneficial in the long run. Moreover, acquisition happens when a particular company reaches the end of its life cycle – the mature phase.
One benefit that a business acquisition may bring is acquiring quality personnel or different talents, industry or sector knowledge, and other business intelligence. A buyer that wishes to improve their management and process systems, for example, will benefit from a company with superior management and process systems. If you’re having trouble growing regionally or nationally, buying an established company that reached a matured phase might be less expensive rather than expanding internally. Ideally, the company you hire should have designs that complement your own and can scale up to handle a more extensive operation.
Step-by-Step Guide to Business Acquisitions
Step 1 Make a Joint Business Plan.
Once you and your M&A advisor have identified an acquisition objective that meets your standards and agrees to be acquired, you will need to create new short-term and long-term business plans for your merged company to obtain financial support to finance the acquisition.
Step 2 Putting Together a New Management Team and Hiring New Employees
Discuss the logistics of integrating your staff with the company’s CEO you want to acquire. Begin by determining who will supervise the new firm and what roles you will play. Merging your respective workforces should not be too difficult if you are a microbusiness and the new firm will only have 5 or 8 employees. If your recently established firm has 20 or more employees, you may want to develop new departments with new heads of departments, each with a distinct function.
Staffing redundancies, such as two individuals from each firm primarily having to serve the same objective, may raise a red flag in the perspective of a potential lender, so ensure that your new staff layout is as efficient and effective.
Step 3 Developing a New Mission Statement to Reflect Your New Capabilities
The mission statement of your new firm should specify the latest products that you provide, how employees confront their work to achieve goals, and why your new firm is developed in the form of giving products and services for the acquisition.
Next, determine the sales capabilities that your new company has to give. For example, the acquired company may have eCommerce capabilities, whereas you have more store locations. Your new firm will provide both following the merger, and your mission statement should reflect this. As an outcome of the merger, your new firm may now provide business-to-business, business-to-consumer, or a combination of the two. In addition to being a significant component of your objective, these variables should act as a benchmark for your five-year business plan.
Step 4 Demonstrate Your Ability to Absorb Liabilities
Generally, the firm you buy will have some loans that you must absorb. To obtain funding for your acquisition, you must first persuade the creditor to manage the liabilities, especially since you will be using debt to fund the merger.
Since you’ve decided to apply for a new payment through financing an acquisition, then the best technique to show in your business plan is that you can obtain the liabilities and raise your gross profit through efficiency gain or scale.
Step 5 Project the Newly Made Company’s Gross Revenue
To project a 12-month revenue, try to consult your accountant or M&A advisor. There are different methods for projecting revenue. It is usually much more complex than simply adding your company’s gross income to your acquiring firm, so consult a financial expert on this.
Projections are beneficial tools in planning business decisions and strategies. When a company is already bought, there is an indication of the possible gross revenue. The knowledgeable business owner must understand the costs that underlie generating that revenue.
Final Thoughts
Acquiring a company from a different industry to lower the entrance hurdles to a new market, hence it can diversify its business operations and product line. Furthermore, when a company buys another company in the same industry, its market share rises, enhancing customer and shareholder confidence. It also reduces the degree of competition for the acquirer. It will help your company swiftly expand its market share. Although competition can be fierce, growth through acquisition can help you achieve a competitive advantage in the industry—the procedure aids in creating market synergy.
A corporation can acquire other businesses to get expertise and aid that it does not currently have. Many benefits can be gained, such as rapid revenue growth or an improvement in the company’s long-term financial situation, which makes acquiring funds for expansion initiatives easier. Moreover, growth through acquisition allows a buyer to obtain talents or innovative technologies faster and at a lesser cost than developed in-house. An asset can effectively address crucial time-to-market difficulties. The most effective way to develop businesses is through a well-executed strategic acquisition that takes advantage of possible synergies. However, despite its benefit, acquisition takes a long process, and it should be thoroughly followed and analyzed to avoid problems along the way.