By Scott Bushkie – CBI, M&A Advisor
Here’s hoping all your holiday gifts were well chosen and gratefully received. If you’re anything like me, you bought all your presents on Christmas Eve morning. There’s something about that final shopping day that puts me in the spirit.
Of course, that kind of last minute shopping might work for gifts, but not when it comes to buying a business. As you think about business growth, sit down with your team and figure out if acquisition could be the right strategy.
Here’s why several of our active buyers are searching the market right now.
Instead of trying to enter a new territory and build a customer base from the ground up, acquisition gives you instant market share. You get a brand that’s recognizable in its marketplace along with its established customers, people talent, and cash flow.
Cornerstone's sell-side is currently representing two companies in the oil and gas industry in North Dakota. Because of the synergies, Cornerstone's pursuing an arrangement that would sell both companies to one well-established industry operation.
If you’re already a major market player in the Bakken, you might say, “What do I get out of this? I could grow this business organically.” For this buyer, the answer to that question is more about the defensive play versus the offensive. Sure they’ll get some synergistic cost savings and additional market share, but more importantly, they’ll prevent a strong competitor outside of the Bakken from gaining instant access to their marketplace which could erode their current market share and or negatively affect their margins. A new national player with more capital and combined synergies of the two top industry players would pose a new credible threat to their existing business.
Cornerstone's buy-side division is working with a company from Israel looking to grow their U.S. presence through acquisition. Ideally, they’d like a business that does exactly what they do—injection molding for the food and ag industry.
But since that’s a pretty limited niche, they’re open to companies selling a different product to the industry and customer base. Under that scenario, they can accelerate U.S. market access for their products by leveraging the target’s established sales network. What’s more, they’ll likely gain cross-sale opportunities for both businesses.
Cornerstone's Israeli client is targeting Midwest acquisitions in order to minimize transportation costs and maximize their market potential. They’ve pinpointed 500 kilometers as the ideal shipping radius for their product. Anything beyond that weakens their competitive advantage in terms of shipping costs and timing. Part of their acquisition strategy is about acquiring a convenient distribution hub, not just regional market share.
Our private equity firm buyers are looking for an investment opportunity. They want a company where they can create value by reducing costs and accelerating growth. They use investor money to buy, improve, and sell a target company before returning profits to their investors.
And while this practice is dominated by private equity firms and family offices, strategic buyers may find a similar return on investment by acquiring a business with poor margins or other rectifiable weakness.
Of course, buying a business is not without risk. When evaluating an acquisition opportunity, look to culture and talent issues. You want to purchase a business where the corporate values and leadership visions align with your own. If you can get those things right, good things will usually happen.
By Scott Bushkie
With more than 20 years in the Mergers and Acquisitions (M&A) industry, Scott is a recognized leader in the field, providing exit strategies, business valuations, and M&A advisory services to business owners in the lower middle market. He has successfully executed sales to domestic and international buyers, private equity firms, family offices, and strategic buyers.
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