Acquiring Another Company

If you’re looking to move your business forward, you might consider the strategic acquisition of another company.
 
Perhaps the owner of another business in your industry, maybe even one of your direct competitors, is contemplating selling their business and may be willing to sell to you at a very reasonable price.
 
That can be a tempting opportunity – especially if you can reduce the total costs of running both businesses together and create more value for the combined company.
 
In short, you’re looking for an opportunity where the “whole exceeds the sum of the parts.”
 
But buying another business can be risky. CEO advisor Robert Sher points out that approximately 50 percent of merger and acquisition deals fail. And Forbes contributor Frank Vermeulen suggests that percentage may be more like 70 percent.
 
Statistics like these mean you should carefully consider both the advantages of an acquisition and the pitfalls to avoid.

Advantages

The benefits that come with a strategic acquisition of another company include:
 
  • Adding value to the combined entity by eliminating redundancies and increasing overall revenues.
  • Taking advantage of additional distribution channels that you can leverage more effectively with your own products and services.
  • Acquiring existing technologies and business processes, which would otherwise be extremely expensive to develop on your own.
  • Accessing talented managers and employees without the need to engage in an extensive search and hiring process.

Disadvantages

There are, however, significant disadvantages to avoid when considering an acquisition, including:
 
  • Possible clashes between your corporate culture and that of the company you intend to buy.
  • Apprehension among both your employees and those of the company you acquire. These employees may feel that their jobs may be in jeopardy during a consolidation (and their concerns may even be warranted).
  • Potential increased debt on your balance sheet if you’re borrowing money to fund your acquisition, which could impact your ability to borrow additional funds for other purposes.
Also consider that if you’re the CEO of a publicly traded company, your board of directors will certainly have to weigh in on your decision – and may have their own opinions on whether your acquisition strategy is sound and well-researched.

Game Plan

  • Review some of the best practices in creating a well-thought-out investment strategy in this Harvard Business School reprint available from Bain & Company.
 
Need Business Insurance?

Need Business Insurance?

For more than 200 years businesses have trusted The Hartford. We can help you get the right coverage with an online quote.
Start Quote
Find Out More About Mature Benefits
The content displayed is for information only and does not constitute an endorsement by, or represent the view of, The Hartford.