 Growth If your business is growing through increasing sales, then at some stage you will have to decide how big you want to go. Is this a lifestyle business – ie one that gives you a nice living and a satisfying occupation? Or do you dream of the big time? Have you got what it takes to compete with the big boys? Are you happy for your role in the company to change (inevitable, if you go for growth)? Will you mourn the passing of the original cosy If you decide to go for growth, there are two basic ways to grow a business: through organic growth (expanding the existing business through increased turnover and some form of development capital) or M and A (merger or acquisition, where two or more businesses are combined to advantage). M and As are as difficult to get right as marriage, and almost as likely to fail. (Between 50% and 80% of M and A deals fail to live up to expectations.) Think of the deal as a wedding, between the courtship and married life. While you are dating, you both take care to look your best, spend lots of time with each other, want nothing more than to be together, and can’t stop talking and making plans. The wedding preparations are fraught, take months, involve an army of experts, and cost a small fortune. When the honeymoon is over, you won’t spend any money, your faults show, little things irritate, and you don’t communicate. And with rare exceptions, there is no such thing as an equal relationship – there is always a dominant partner, which usually becomes clear during the honeymoon. No wonder mergers and acquisitions break down as often as marriages. They may not all get to the point of divorce, but if the board can’t make it work well, it can be a long and frustrating relationship full of resentment, simmering discontent and occasionally vicious rows, Get it right, however, and the sales turnover will jump with better profit margins after duplicated costs have been cut out, operations become more efficient, and markets can be better exploited. The buy-and-build model became popular a few years ago, with an MBO or IBO as the platform to bolt on a series of acquisitions quickly, using private equity and debt to transform a relatively small company into a very different business. Getting the deals right and managing It doesn’t have to be so complicated, though. A simple acquisition, of a business whose owner wants to retire, perhaps, or buying the assets of a company from the receivers, should be fairly manageable if the planning is done well and the integration managed sensitively. Strategic thinking, and having access to funds should a good deal come up, are key to successful acquisitions. Photograph credit: Arabella Mcintyre-Brown
|
