Growth through acquisition: accelerating growth and consolidating your sector

Whether in a fragmented or very active market, acquisitions can become a powerful growth tool. However, they must be backed by a well-defined strategy.

In a fragmented sector, growth through acquisition can allow an organization to accelerate its development, increase its size and enhance its competitive positioning. As a complement to organic growth, it offers a company the possibility of progressively consolidating its market presence.

In this way, an acquisition becomes more than a simple growth tool. It is part of a strategy aimed at moving the business forward and creating long-term value. In order to fully leverage the benefits, clearly defining your objectives, focusing on the right companies and thoroughly preparing their integration is essential.

In which situations does an acquisition become a strategic tool?

An acquisition can accelerate a company’s entry into a market where there are barriers to entry through organic growth.

Let’s take the example of a company that wishes to become a supplier for a major contractor. The certification process can take several years and success is not guaranteed. Acquiring a company that has already built this business relationship can speed up the process considerably.

An acquisition strategy can also facilitate other ambitions, such as doing business in a new region, adding projects and services to the offer, and accessing new clients.

How can you choose the right acquisition target?

Before spending time on research, ask yourself the following questions. Would you like to expand your presence in a specific market? Do you want to acquire particular expertise? Do you want to increase your production capacity or expand your offer?

Your answers will allow you to create a profile of your target based on several criteria, such as its:

• positioning in its market;
• products and services;
• geographic presence;
• production capacities;
• areas of expertise;
• revenues and profitability.

A financially appealing target is not necessarily the right acquisition. The target must align with the objectives you’re seeking to achieve.

How can you evaluate the potential of an acquisition?

The expected synergies play an important role in analyzing an acquisition. For example, they could take the form of cost savings where certain functions are combined or higher purchasing power is created. These synergies may also result from additional revenues, particularly where the buyer offers their products to the acquired company’s client.

Cost savings are generally easier to predict and quantify than additional revenues. However, exercising caution when making assumptions and avoiding overestimating the transaction value is advisable.

Does your organization have the means to complete an acquisition?

You must also evaluate your capacity to finance the acquisition while maintaining a healthy capital structure and sufficient leeway to support your activities.

Analyzing your forecast cash flows, debt capacity and available liquidity will allow you to determine the level of financing your organization can support.

Our experts can guide you through evaluating the various capital sources, seeking financing and negotiating the conditions with a view to building a structure tailored to the transaction and your financial capacity.

For more information, read our article on how to structure the financing of a business acquisition.

Why should you prepare the integration before the acquisition?

An acquisition can appear to be an interesting option on strategic and financial levels, but may not produce the expected results if the integration is rushed. Human and organizational issues are particularly significant. Retaining key employees, aligning teams, cultural compatibility and the continuity of client and supplier relationships can directly impact the transaction’s success.

Therefore, planning should begin at the same time as the due diligence process. In particular, this step helps business leaders to identify the main integration challenges, key individuals to retain, potential synergies and priorities for the first few months following the transaction closing.

A team should be assigned to the integration process and responsibilities for each key area (operations, finances, human resources, technology, sales and legal affairs) should be clearly defined.

Then you can use an integration plan to determine the priority actions following the acquisition closing. This could include communication with employees, clients and suppliers, operational continuity, harmonizing systems and processes, and implementing the identified synergies.

A thorough approach becomes all the more important as part of a strategy involving multiple acquisitions. Before embarking on a new transaction, the company must ensure that the previous acquisition is sufficiently integrated and that it has the necessary financial, human and operational resources to absorb another acquisition.

How can you measure an acquisition’s success?

The criteria for success must be based on the objectives determined prior to the transaction. If the objective of the acquisition was to increase revenues or reduce certain costs, the results achieved can be compared against the projections used to justify the investment.

Financial indicators are just one piece of the puzzle. Retaining key employees and important clients can also allow you to assess the integration’s success. Ultimately, the question is whether the acquisition enabled the organization to achieve its initial strategic objectives.

How can we help you?

An acquisition strategy requires a range of complementary expertise. Our teams can support you with identifying targets through to closing the transaction, which includes evaluation and due diligence in addition to structuring and financing the acquisition.

Are you planning an acquisition to accelerate your business’s growth? Contact our experts.