Three Reasons a Business Acquisition can Increase the Value of Your Business
In today’s market a number of buyers can be categorized as “strategic” buyers. Strategic buyers are often direct competitors or indirect affiliates interested in potential acquisitions that fit into their own business looking at synergies and integration capabilities while creating incremental shareholder value. Strategic buyers can be found on Wall Street, Main Street, and everywhere in between. Below are three reasons that a strategic acquisition can add value to your business.
1. Increase your customer base
A strategic acquisition can open the door to a new customer base for your existing products and/or services. Customers develop loyalties and purchasing patterns over time that can be difficult to penetrate if you’re not already a vendor. Integrating product lines via an acquisition creates immediate opportunities, previously unavailable. Measuring the impact of an acquisition on your portfolio may reveal hidden gains not calculated in traditional valuation methods.
2. Leverage your Sales Team
Similar to above, synergies may exist in your sales channels to expand the market share of the acquired company’s products/services across your customer base. Leveraging your relationships, distribution, and back-office systems to increase per-customer revenue is an efficient path toward overall growth and margin improvement.
3. Multiple of Earnings
Business owners often speak of valuation expressed as a multiple of earnings. A strategic acquisition can result in an immediate increase in valuation by virtue of size. For example, Small Co is purchased by Large Co at a price that equates to 4X earnings. When folded into the portfolio of Large Co, a company valued at 6X earnings, the combined earnings are now valued at the larger company multiple, before synergistic savings, write-offs, and investments. In this example, Small Co earnings are worth 50% more than pre-acquisition. On Main Street, we’ve seen this happen several times in companies specializing in-home service industries, professional services, distribution, and others.
If you’re evaluating growth opportunities, consider a strategic acquisition as one of the options to grow topline revenue and the overall value of your business.