Growth by acquisition can be a powerful strategy. Heck, I wrote a book on it. But let’s look at when it works and when it doesn’t. Examples of past client successes include when the target firm:
- Provided space for expansion, along with immediate revenue.
- Added products to the portfolio.
- Gave increased revenue from a new customer base.
- Offered new product lines and a new geographical area.
What I’ve learned is it’s a challenge when the industry is extremely fragmented and filled with a plethora of micro-businesses. They may want to exit but the work and cost to do a deal isn’t worth it. Plus, the owners have price expectations as if they were 5-10 times as large.
It’s all about scale. Adding $1 million of revenue may be worth it to some but not others (same if it’s $3 or $5 million). This hit home recently when a client realized the cost of buying customers and revenue in small bits isn’t worth it compared to their organic sales potential (stealing customers with a better product and service).
What the above means is, it pays to determine what your minimum size target is to make it worthwhile. Because when it works, it’s fantastic.
“Experience is a good teacher, but she ends in terrific bills.” (Writer) Minna Antrim