Fifty-five percent of executives surveyed believe that mergers and acquisitions will add more than 5% to their company’s revenue growth over the next two to five years (Deloitte, 2010). Twenty-five percent believe that mergers and acquisitions will add more than 10% to their company’s revenue growth within five years.
Your sales and marketing teams are already focused on organic growth, whether through capture of additional market share or development of existing customer business. As you contemplate additional revenue growth through acquisitions, consider these key questions each time you evaluate an acquisition target.
- Why are we buying this company?
- What is the value of this company to our enterprise?
- What is the correct structure for this transaction?
- How will this acquisition be funded?
- How will this acquisition be managed once acquired?
We’ll take a look at each of these questions together over the course of several posts. First, let’s look at one of the most basic yet frequently overlooked questions, “Why are we buying this company?”
An acquisition should occur only when all other means of achieving a corporate goal are inferior. For example, if the corporate goal is to increase profitable sales and that goal can be more readily accomplished by additional sales or marketing investment rather than an acquisition, the acquisition should not occur. If the corporate goal is diversification of activity, the acquisition should be viewed as a more effective entrance into the new line of business than a startup effort in that field.
Recently Google reversed the standard “If you can’t beat ‘em, buy ‘em” acquisition slogan when Groupon refused Google’s $6 billion purchase offer (PCWorld.com, 2011). Google had been motivated to acquire Groupon as a “platform”; a business upon which to build its own daily deal offering. When Groupon refused Google’s offer, Google abandoned its acquisition plans and developed Google Offers as a competing deals site.
Next: How much? A look at acquisition values from both sides.
Deloitte. “Corporate Development 2010: Refining the M&A Playbook, Survey Results”. http://bit.ly/deloittecorpdev April, 2010
PCWorld. “Google Says: ‘If You Can’t Buy Groupon, Beat ‘Em’”. http://bit.ly/GoogGroup April 21, 2011.
The biggest news in the industry today is the potential impact of the earthquake and tsunami that hit Japan in March. We are beginning to get feedback and more details from our manufacturers and suppliers as to the short term and long term effects. The initial information indicates that all Japanese manufacturers in the industry will experience some impact and delays in product distribution.
The major impact to our manufacturers appears to be caused by the disruption in transportation, fuel and electricity supplies, communications, and the procurement of parts and raw materials. That being stated we are anticipating a possible 30 to 60 day delay in obtaining certain models of equipment and some supplies. We understand that some of the production of supplies has been shifted to facilities that are not located in the devastated zones and thus interruption will be minimized.
In anticipation of these disruptions in products, parts, and supplies RJ Young made an unusually large purchase of these critical areas immediately after the disaster was announced. We have inventories that should help prevent any disruptions to our customers. In addition with our resources spread over five distribution locations we are able to pull from numerous warehouses for needed products.
It appears that we have taken a proactive approach to the unfortunate situation and we will make every effort to protect our customers and continue to service our base of business as in the past. We will certainly monitor the situation as it progresses and hopefully improves for all those concerned with the disaster.