Plant (3)

In today’s business climate, it can be difficult for businesses to increase their revenue organically thanks to the UK’s slow-paced economic growth. This is particularly true for small and medium-sized enterprises (SMEs), whose resources are even more limited compared to national and international corporations.

Although every acquisition is inherently different in nature, the overarching benefits are consistent. Acquisitions are ultimately quicker, cheaper and far less risky for SMEs compared to traditional methods of growth such as marketing and sales efforts. For many small businesses, acquisitions can play a crucial role in determining their commercial success and, ultimately, survival.

The main benefits SMEs can enjoy following an acquisition include:

  • Broaden existing service or product offering
Acquisitions allow small businesses the unique ability to widen their existing service or product portfolio through harnessing the capabilities of the other company. This can apply to widening a business’s offering within the same markets or alternatively penetrating new, niche markets that were previously ‘off-limits’ due to limited resources and inexperience in the sector. By being in a position to offer better services and products to clients, sales and revenue are likely improve in a relatively short period of time.
  • Increase market share
Although the concept of acquiring a key competitor can be daunting for most staff, the process ultimately results in the removal of that player from your marketplace. SMEs can instantly improve their market share as a result, which will undoubtedly help improve their reputation within the sector. It also allows immediate access to an additional income stream and ensures faster returns on investment. Furthermore, SMEs also acquire the majority of the other company’s customers, therefore increasing the business’s customer base and purchasing power. However, it is worth noting that firms should account for some loss of custom during this process, predominately due to customer loyalty and dissatisfaction with the acquisition.
  • Expand workforce
One of the most impactful benefits after acquisition is the effect it has on the business’s workforce. Whether staff numbers increase by a handful, double or triple following the takeover, every additional person who works for the company will bring a new range of skills, experience and industry knowledge with them. They are also most likely to have a pre-existing network of contacts, which the business can also harness and utilize, further expanding the business’s reach and expertise within the sector.
  • Instant economies of scale
Another key benefit is the significant reduction in costs and overheads achieved through shared budgets, increased purchasing power and lower operating costs. Not only does this leave more scope for increasing revenue, it also provides the business with more access to distribution channels or operating systems for little cost.

How to manage the process

  • Strategically decide if an acquisition is right for you
It is crucial that businesses thoroughly plan, research and decide whether an acquisition is the right decision for them and their future success. Growing organically takes resource from all levels of the business and requires strong strategic planning. Yes, it is beneficial for companies that have an established and successful infrastructure and the skills and knowledge to grow in this way. However, though organic growth can take more time, it can also be offset by the benefits of increased control and reduced risk that acquisitions bring.
  • Strategically target the market
It is important for firms to correctly position and target appropriate markets following a takeover. Failure to do so through incorrect assessment of combined capabilities can make a business less attractive to a wide range of sectors and potentially jeopardise its position as a market leader.
  • Manage reputation during the process
Managing the reputation of the new organisational structure is crucial. Rapid growth following acquisitions can be uncontrollable and can have implications for both the quality of service delivery and cash flow. Ensuring the acquisition takes place as smoothly as possible is key both in terms of long-term sustainability, stakeholder confidence and securing the business’s positioning within the market place.
  • Manage the integration of corporate cultures
Failure to correctly manage the merging of the two corporate cultures can have drastic effects on a business, including poor productivity, low morale and even and high-staff turnover. Staff may feel hesitant or concerned about working with their former rivals, however management need to properly educate their staff on why the process is a positive thing for the business and explain the benefits it will bring. Teambuilding activities, staff training and close management from the top is essential in ensuring an efficient acquisition.

By Stuart Davies, Managing Director of TSW Training