Should You Buy Or Build A Company: Taking Advantage Of Inorganic Growth Opportunities?
I listen with some perplexity to small and medium enterprise owners who want to expand their businesses, yet who seem unwilling to grasp the advantages of inorganic growth – of building via merger or acquisition – as opposed to the supposedly safer and more sustainable organic growth.
Some complain that there is nothing appropriate available, there is no capital available for ventures that will not net millions or billions of return, and the cost due to legal and regulatory legwork put SME expansion opportunities nearly out of reach.
On these three points, I beg to differ.
1. Businesses of any type and size are readily available for sale. It may take some determined searching and out-of-the-box thinking to find the best purchase, but keep in mind that now, and for the foreseeable future, Baby Boomers are looking to sell their businesses and retire or reduce their responsibility relative to running the company. There are far more business owners seeking to divest than have ready heirs or apprentices to take the reins.
One could also consider that there are many failing businesses out there, for which owners a sale would be a welcome relief. For a manager in possession of the fortitude and savvy, such a purchase and rescue has the potential for modest but reliable returns.
2. It is possible to buy without putting up your own equity. More and more private pool equity and shadow capital is available for small- to-medium-size expansion these days, for managers who are willing to look for and negotiate agreeable matches for these investors who are more hands-on than those in blind pool equity.
3. In the rapid advancement of information technologies with which business is conducted around the globe, virtual mergers are increasingly attractive. In such an arrangement, separate companies develop agreements around specific advantages of combined assets, operations, technologies, knowledge, and jurisdictions, while maintaining discrete management and physical locations. Virtual mergers can be devised without the exacting paperwork, due diligence and accompanying costs involved in traditional mergers and acquisitions. They can be just as easily dissolved at the achievement of the desired outcome.
By all means, do your homework. The potential purchase must make sense in terms of your overall company goals. According to all the modeling, the opportunity should represent the desired quick increase in value or acquisition of market share or resources needed to obtain that market share. Do not forget that you should be able to account for sufficient secondary asset to leverage for additional growth should the projected revenue fall short.
When these standard benchmarks can be met, all it takes is some creativity to identify and fashion ideal inorganic growth opportunities. I am continually excited about the amazing potential for business success available to this generation. When it is possible and appropriate, I will lean toward building via inorganic growth every time.
