DO YOU WANT TO BUY A BUSINESS? Part 1 Buying Considerations

February 11th, 2012

Buying a business can be full of challenges, but it is often the quickest way to grow your company.

In fact, many of the great businesses we see today became dominant players in their field through acquisitions. Most acquisitions are driven by the desire to increase shareholder value. Yes, bigger is usually better or at least more valuable. Before you set out on the acquisition trail it is important to have a flexible but clear strategy for your acquisitions. You need to know what fits. What you are looking for in a target firm?

Buying Considerations

 Companies acquire for a broad variety of reasons. Some acquire to:

  • Increase market share
  • Create economies of scale
  • Offer new services
  • Generate new sources of revenue and profits
  • Acquire management
  • Bring in fresh ideas 
  • Enter new markets

 When you look at building or buying, the fastest and often easiest path is by buying, provided you have access to capital at reasonable costs and the ability to effectively intergrate the acquired business. 

The challenge in making acquisitions work is managing each step of the process carefully. This often works best when clear-cut goals are thought out and presented to your current employees, many of whom will perceive these decisions as affecting their future opportunities. It is worth taking the time to get key employees to buy into the larger future you are creating.  Clearly defined objectives can also serve as a guideline at several stages of the process. 

 There are a number of areas you need to review prior to seeking acquisition targets. The answers to the following questions can save your firm valuable time and resources. These core issues can serve as a template for your acquisition opportunities. 

1.  What are your goals in acquiring?

  • Expand in existing markets
  • Open new markets
  • Increase market share
  • Spread infrastructure costs
  • Reduce or eliminate competition in a particular market

 2. What are your acquisition criteria?

  • What is the annual sales range of your targets?
  • What are the financial performance goals you seek (e.g. Gross Margin / EBIT / average bill rates / sales history growth rates, etc.)?
  • What geographical markets do you want?
  • What sector(s) of the industry are you looking for?

3. How will your acquisitions be funded?

  • Internally
  • Borrowed, if so, are funds approved and in place
  • Private Equity / Venture Capital

 Are you looking for top-shelf well run companies or distressed properties? What resources are you better equipped to offer, financial, operational or human? This may influence the type of business you can integrate most successfully.

4. In choosing an acquisition target buyers often look to create value for themselves by:

  • Lowering unit costs through economies of scale and better cost management
    • Increasing market power by spreading its’ brand over a wider base
    • Entering new geographic or industry markets
    • Offering existing customers additional services
    • Creating synergies so 2+2 equals at least 5
    • Gaining new technology
    • Expanding their customer base
    • Acquiring management talent

 In Part 2 we will explore additional Buying Considerations and take stock of what are answers to these questions have told us about ourselves and the best types of businesses for each of us to seek for acquisition.

For more information or a complimentary confidential discussion on any Staffing M & A subject, contact: Bob Cohen at 416-229-6462 or Sam Sacco at 910-509-0691.

 We can also be reached at bob@racohenconsulting.com or sam@racohenconsulting.com.

Sam and Bob have successfully completed over 135 staffing industry transactions. Visit our website for more articles and information at:    www.racohenconsulting.com