How Do I Create Value via Acquisitions?

Many private business owners consider growth via merger and acquisitions a topic solely to be considered by large and public companies.  However, the ability to accelerate growth and capitalize on strategic levers to enhance profitability is often uniquely available to the private company owner.  Repeated studies of acquisitions by larger companies illustrate that the greatest success in building value is achieved when the buyer and target are effectively integrated post acquisition and the combination generates true synergies.  Fortunately for the owner of a middle market company, the insight, skills and leadership required for integration are readily available in a trusted and motivated individual – themselves.  Most mid-market companies with $10 - $100M in sales are not frequent travelers on the acquisition trail and generally benefit from utilization of practiced expertise from the investment banking, legal, and accounting communities.

There are five generally recognized steps to successfully grow through acquisition.  These are:

1.  Development of Business Strategy
2.  M&A Plan Development
3.  Execution of the Plan
4.  Financing and Closing the Deal
5.  Integration Planning and Execution

The following article discusses each of these steps in some depth.  Note that while these are listed in rough chronological order, several of the steps are either partially or concurrently completed in preceding steps.

Step 1 - M&A Strategy Elements

Successful growth via acquisition is built upon a thorough understanding of the company’s business strategy and in particular the aspects of that strategy that can best be fulfilled through an acquisition.  How does one identify those elements?  Virtually all for-profit entities have a business strategy that is based on adding value to the company.  In an acquisition scenario, building value is not achieved by adding 1 + 1 to get 2.  Rather, the successful acquisition is based on the ability to leverage an element of either the buyer or the acquired company and achieve synergy, thereby creating value that is greater than the simple addition of two entities.   Value creation through acquisition generally results from one of three strategic objectives - revenue growth, risk diversification, or cost reduction.   Identifying which of these objectives has the most potential to increase value is one of the key strategic decisions that a business owner and his management team must make.  A sound decision must be based on a comprehensive understanding of the company’s strengths and weaknesses and capital resources.  Some examples will illustrate these principles.  


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