Your business is not for sale right now. But could your head be turned if someone expressed an interest in buying you out? If you were tempted, what would a potential buyer find if they started to explore behind the scenes?
Strategic business acquisitions are common in sectors like technology and pharmaceuticals . The possibility could arise for any business at any time. This means preparing your business to be a viable acquisition target is a wise move.
In this post we’re going to look at what a strategic acquisition is, why they happen, and how to make your business such an irresistible proposition, your competitors will be clamouring to make you an offer.
What is a strategic acquisition?
An alternative to organic growth, strategic acquisitions are a quick way to grow a business through purchasing another company that already operates in a market the acquirer wants to tap into. A strategic acquisition effectively removes a competitor from the marketplace, clearing the way for the purchasing company to develop and expand.
This type of business acquisition can happen at any scale, from small businesses to corporations with global operations. You might recall Google buying Android in 2005 to enter the mobile phone market. Another high profile example is Vodafone’s takeover of Mannesmann AG in 1999 for $183 billion – reportedly the biggest strategic acquisition of all time.
Reasons a successful business might be acquired
Strategic acquisitions usually come about because there is some level of perceived business value from the prospective buyer. Let’s consider some of the reasons why acquisitions lift a business to the next level.
- People – do you have talent, skills and experience that would take years to train? Take the example of OpenAI (owners of ChatGPT) acquiring New York based tech start-up Global Illumination in August 2023. All eight employees have been taken on by OpenAI to develop creative tools, infrastructure and digital experiences. A ready-made team with the skills OpenAI needs to achieve their next goals.
- Client base – is your client book a valuable asset? A competitor might want to get into your sector or geographical location and expand their reach by acquiring a client base that would take years to build up organically.
- Products and services – have you developed a unique product or service that can’t be replicated and gives you a competitive advantage? Many tech companies are set up with this in mind. They develop an idea, software or application already with the intention to sell from day one, preparing for this as they go. Business owners in the manufacturing, engineering and professional services sector can learn a lot from the tech mindset.
- Eliminate competition – larger businesses may look to acquire smaller competitors in order to dominate the marketplace.
Preparing your business for strategic acquisition
Receiving a speculative acquisition approach is a bit like finding an estate agent flyer ‘looking to sell properties like yours’ or a note from someone who would ‘love to own a home like yours’ on your doormat. You might not think you’re interested in selling until the contact plants a seed of possibility in your mind.
If becoming a business acquisition target is part of your long-term business exit plan, there are certain things you can do to enable the process. Speaking to a specialist exit planning consultant, a generalist business coach or a sell-side business broker will help to prepare you for those unexpected offers. They will be able to give you some guidance early on as to what will make your business attractive to a buyer, and sometimes more importantly, what will not. Book a discovery call with us to find out more.
Planning and preparing the following business documentation will assist the due diligence process and provide peace of mind to any prospective buyer.
Financial records and forecasts
From profit and loss to balance sheets, income to invoices, up-to-date financial records are an essential for any potential buyer interested in acquiring your business. It’s worth working with your accountant to ensure your financial statements and forecasts are in order.
Review your standard operating procedures
It’s good practice to review and refresh your operating procedures and manuals annually. A buyer will want to see the most current information on how your business operates.
Customer records and profiles
How many regular customers do you have? What’s the average value of a client transaction? How long do they stay loyal to your business? Just three examples of questions a buyer may want answers to. Maintaining good quality client records will allow you to answer these questions efficiently.
Employee records and profiles
From demographic profiling to length of service, skills and training records, employee data is a key metric that could prove decisive to a buyer.
Having systems in place and being able to access data at the press of a button builds trust and confidence in your business as a viable strategic acquisition and sets the foundations for a successful sale. Whatever your business exit strategy looks like, you can be working on preparing and maintaining documentation years before a sale takes place. So when that strategic acquisition opportunity comes along and the buyer comes to inspect your business, they will discover a company that not only looks good from the outside, it’s healthy and profitable on the inside too.
Useful reading
You might also be interested in reading our case study: Are you prepared for unsolicited buyer approaches? and our blog Business exit strategy – the ultimate guide.
