This article was contributed by Aaron Ghais, a deal lawyer at Shulman Rogers that has helped his clients buy, sell, and finance businesses, and has closed over 350 deals worth over $2.5 billion in the past 20 years.
You want to grow your business, right? Well how are you going to do that? You could do it the old fashioned way by gradual, incremental expansion; but there’s an alternative that may help you grow your business more quickly and very possibly with less risk and expense – namely, by acquiring another business.
With that second alternative in mind, you may now be asking yourself: “So when should I, as a business owner, consider acquiring another business as a way to expand or improve my own business?”
Consider that buying another business could very well be the best possible way for you to do one or more of the following:
- Enter a new line of business that is complementary to your current business or that minimizes overall risk by diversifying your company’s business lines;
- Achieve certain advantages of scale (e.g., to achieve lower manufacturing or distribution costs per unit);
- Gain access to new contracts or cash-flow opportunities that wouldn’t otherwise have been accessible (e.g., by buying a company that has access to a government contract vehicle through which the government will be rewarding lucrative task orders; or buying supply contracts from a competitor that allow you to expand the total volume of goods you supply to customers);
- Obtain valuable intellectual property and technology (e.g., by buying a company with a critical patent that, when integrated into your product, would make your product the market leader in some respect); or
- Obtain the services of a team of employees who have unique expertise or hard-won access to key decision-makers.
But, before pulling the trigger on an acquisition, let’s consider the alternative, which is to grow your business organically. To do so, you’ll likely need to obtain financing, make expensive capital expenditures, expand your marketing and sales efforts, earn and nurture customer loyalty, hire more people, develop new expertise, and build internal systems and procedures, among other things. None of this is impossible or unusual, but consider these challenges…
To read the rest of Aaron’s article on the Getting Deals Done blog – including his list of challenges facing companies pursuing organic growth and a list of reasons for doing an acquisition – click HERE.