When you’re looking to grow and expand your business, you often assume you have to look in-house. But what do you do if the capabilities within your company don’t allow you to expand the way you want to, or as quickly as you need to? That’s when you want to consider acquiring complementary businesses.
A complementary business can bring a host of benefits to your company. You can increase revenue and expand your product lines. You can offer geographic diversity to your customers and employees. You can pick up additional employees and talent, and acquiring a complementary business can give you additional purchasing power and leverage for financing arrangements.
Acquiring a business isn’t something to take lightly, and it’s important to do your research. Here are the best practices for acquiring complementary businesses.
Finding the Right Complementary Business
The first step is to find the right kind of complementary business to acquire. Here are some best practices for finding the right complementary businesses to consider.
- Know your goals. Before you approach any organization, know what your goals and objectives are from an acquisition. Know the acquisition criteria regarding size and geography.
- Look for companies your customers also shop with. One great way to find a complementary business to acquire is to find organizations your customers already interact with regularly. The likelihood is high that you could gain additional business from acquiring a company with very similar customer bases.
- Don’t stray too far. One key to acquiring any business is the ability to continue to run it successfully. By sticking to adjacent market spaces that are a logical extension of your business, you’ll gain the benefits of an acquisition without stretching your expertise too far.
- Look for brand consistency. You’ll want to acquire a business that will be well accepted by your current customers, so the brand message can’t be too far from how your company already presents itself.
- Look for companies where you can add value. To make the acquisition a win-win solution for both organizations, you want to make sure you can add unique value for them as well as them to you. If you’re not convinced that you’re best suited to make the deal, you may want to find a different target.
Best Practices for Acquiring Complementary Businesses
Once you’ve researched complementary businesses, you’ll want to choose one that seems appropriate to acquire. This is a process that can make or break your organization, so proceed carefully. Here are some best practices for making the acquisition smooth and successful.
- Don’t Bet Too Big. It’s important not to “put all of your eggs in one basket” as they say. Don’t move forward on an acquisition that will put your organization at risk or will require you to overleverage your company. Even the best private equity firms aren’t perfect at deal-making, and you want the peace of mind of knowing that you aren’t in a “do or die” situation.
- Gauge Interest. Not every company you approach will be interested in an acquisition. When you approach an organization, make sure to clearly articulate why you’d be a great company for the purchase and what they’d gain from being acquired by you.
- Carefully Gather Information. This step requires the utmost care and confidentiality. Make sure to get accurate information about company financials, management, and much more. Working with legal and acquisition professionals can assure you don’t miss anything. And have a high degree of confidence in a company before you finalize a deal.
- Make an Integration or Partnership Plan. The employees at the company you acquire won’t integrate themselves. You need to have a clear integration or partnership plan that you announce along with the deal. It should focus on combining cultures, human resources, technology, and more. Otherwise, you may lose key personnel, have a very rocky transition period, or worse, have the acquired company fail to perform well at all.
Acquiring complementary businesses is a great way to expand your company, increase revenue, gain new customers, and diversify your offerings. However, an acquisition requires real work. Make sure you’re committed not only to the purchase but the full integration process. When you are, you’ll discover new ways to serve your target market, and you may decide to acquire more complementary businesses in the future!