The current economic situation has provided many companies with an excellent opportunity to grow via acquisition. Although strategic merger and acquisition activity fell off in the second half of 2008, the desire to grow via acquisition is coming back strongly in 2010. Before companies pursue acquisitions as a means for growth, they must have a detailed understanding of the motivations, reasons and risks, as well as a team of capable, trusted advisers.
“Merger and acquisition activity has recently increased as strategic buyers reenter the marketplace,” says Josh Curtis, the director of Merger and Acquisition Services at GBQ Capital LLC. “There are several prevailing reasons that now is an appropriate time for strategic buyers to pursue acquisitions.”
Smart Business spoke with Curtis about the drivers, benefits and risks of acquisitions, as well as the importance of preparing for and properly navigating the acquisition process.
As it relates to strategic mergers and acquisitions, why has the interest and activity increased in early 2010?
First, this economic downturn has created a meaningful separation between the strong, well performing companies and the companies who have experienced some turbulence or a nose dive. Companies who are well-performing and financially healthy have the opportunity to acquire competitors at lower prices, specifically those whose financial performance has struggled. The economic climate and the expected length of this downturn has helped bring buyers and sellers closer together, because many sellers find themselves in difficult positions. Secondly, a vast number of management teams are anticipating minimal or no organic growth in 2010, carrying into 2011 and possibly 2012. As such, they view acquisitions as a way to increase revenue and profitability.
What motivations do business owners have to pursue acquisitions?
Acquisitions often provide business owners opportunities to complete their objectives faster than doing it organically. These objectives can include an owner’s desire to acquire talent, expand geographic reach, increase product or service offerings, increase top line revenue, and put more money to the bottom line. Other interests could include strengthening a weak aspect of the business or gaining a successor to run the company. These objectives may be done through acquiring a direct competitor, industry participant or complementary business.
