Considerations Before Finalizing Plan to Acquire a Competitor

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Finalizing Plan to Acquire a Competitor

In many cases, it’s more costly to grow your customer base organically than to acquire another business, either from an already successful one or your competitor.

Your initial assessment includes the cost of generating a customer or a base of revenue in your business- in your industry. If you can proactively make this assessment, you will have an easier time exploring whether acquiring a new business or competitor makes good business sense, leading to your next step – corporate finance solutions. Now, if you’re thinking of selling, this information can enable you and the prospective buyer to assess better the possibility of acquiring your business.

One of the most effective and fastest ways to gain market share and momentum is to acquire a new business or competitor. The acquisition has two distinct advantages – it allows you to remove competition while gaining new products, customer base, and employees.

Before proceeding and making an offer, consider the following:

Review numbers

It is crucial to understand what you are buying. A surefire way to know is through the numbers. Review historical trends. Many companies lessen expenses and stretch profits to make their company more salable. See if sales have shown steady progress over time and check if the cost of sales remained consistent.

Review product and customer mix 

Will there be a worthwhile crossover between both company’s products and customers? Will their customers become your customers too? Will it develop complementary products and services that will let you serve your customers and the new ones better?

Review products and employees

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Did the company turnover key personnel? If one or more of their top employees recently resigned to create a new company, you may be risking your recent acquisition of losing the customer base that you are also paying to acquire. Be sure to check intellectual property like patents and trademarks.

Review their motives

Why is the company being sold? Are they looking to retire? Is the business struggling financially? Or are they in the midst of a class-action lawsuit? You must evaluate everything possible about the company before making your offer.

Review your motives

Are you looking to acquire a new business to serve your customers and theirs better? Do you want to buy them to eliminate competition? Do you prefer to buy them out of vanity? Assess your real motives. If you are merely acting out based on your emotion rather than logic – making your purchase based on competitive advantage and numbers, you’re likely to make a mistake.

Review their valuation

The asking price may be more than what they’re valued, and that’s to be expected before the final price is revealed. Seek out a corporate professional that can help with valuation and ensure that you’re getting a fair price.

Evaluate their culture

If your competitor’s employees and customers are already accustomed to working with a company with values that vary from yours, the acquisition may not be the right fit. A good company mixed with a bad company may not necessarily equal a bigger, better company. It can ultimately lead to the demise of both companies.

Acquiring a new business or your competitor can be the pathway to gaining more customers, better market share, and enhanced profit, but remember to go into it with diligence. Be deliberate and thoughtful, making sure to have a top corporate finance backer to assist in the process. If you consider an acquisition, consulting with your banking partner is a good first step.

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