Should You Acquire or Go Greenfield?
10 Questions for inbound U.S. investors
Question 2 - Should you acquire or go greenfield?
The answer to this question can depend upon a combination of many factors. They won’t all necessarily point in the same direction, but it’s important to weigh each in your decision process.
In the case of an acquisition,
- How similar is your product line to that of the target?
- Are there issues with proprietary or sensitive technology?
- What place will the U.S. venture occupy in your global structure?
- What is the scope and difficulty of the integration task that you’d be taking on?
- How relevant is the cultural gulf between the two groups you intend to knit into a team?
- And at what pace should you move?
Generally, acquisitions can get you into the market in a more timely manner and help you pre-empt competitors. But the price tag is hard to quantify because considerations such as stay agreements management recruiting, and integration carry their own costs. An acquisition also depends on synergy capture.
With a greenfield investment, it’s important to evaluate your own organization’s degree of experience doing business in the United States and the scale of the entry you’re attempting.
- Do you have the strengths in management and technical competence, or are you looking to bolster one of these areas?
- And what type of greenfield move are you considering: licensing, a joint venture, or starting a new entity from the ground up?
In contrast, greenfield investments make it easier to stage or phase commitments which gives investors more direct control over risk management. However, it takes longer to build something new than to add it to your organization with the stroke of a pen.
Questions behind the questions
- Are the customers, suppliers, and service providers you’ll work with in the United States ready for a “new face” in the market, or is their comfort with an existing entity an asset?
- Is it more important for your U.S. operation to prosper on its own terms as a market presence or for it to serve the larger needs of the global organization?
Do it now
If you’re considering this choice, you probably aren’t operating in a vacuum. Compare the top handful of acquisition targets on your list with the top handful of greenfield opportunities. Which ones offer:
- The more timely assimilation into your target market?
- The easier route to capital repatriation?
- The preferred security for your processes and knowledge?
- The more favorable tax advantages?
No two investments face the same challenges or decisions, but it’s possible to generalize about some of the ways a choice of investment mode affects the project’s overall chances.
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|Question 1: Global growth strategy|||||Question 3: Making an acquisition|