23 Feb Corporate Growth through Acquisition – Creating Shareholder Value
Successful growing companies often grow through a combination of organic growth and strategic acquisitions. A strategic acquisition is defined as a transaction in which one company buys another company that complements its business. If they achieve some level of synergy, the result is a combination that is greater than the sum of the parts. For example, if Company A with $8 million of revenue acquires Company B with revenue of $2 million, then the new Company AB would be a $10 million company. But a well-planned and executed strategic purchase may result in combined revenue for Company AB of $15 to $20 million in two or three years.
There are several categories of strategic acquisition that can produce outstanding results if the businesses are successfully integrated. Many acquisitions actually have elements from more than one category. In this and the next few blogs I will briefly describe 13 different acquisition criteria.
#1 – Acquire Customers: this is a factor in most strategic acquisitions. An example is an IT service company buying another IT service company that is in a different geography. Another approach is to acquire a company that has a presence in a different market segment. For example, let’s say that Company A makes software for the automotive industry and thinks that their expertise could be applied to the aerospace industry. Company A could look for an acquisition target that is active in the aerospace industry to jump-start their strategic initiative.