Mid-Market Outlook: Strategic Acquisitions as a Key to Success
Mid-market perspectives blog: Growth enterprise services
Posted by Tom McGee on September 5, 2012
In my last post I wrote that while mid-market executives are concerned about the overall economic environment, they seem to have greater optimism about the success of their respective companies. Today I’m focusing on how growing companies in this market segment are continuing to find new ways to increase revenue, trim costs, and add value.
Strategic acquisitions may be one way for mid-market companies to achieve an expanded footprint and remain innovative, even as market demands shift. According to a recent Deloitte report on M&A, “Sellers, conditions are ripe,” a well-executed acquisition often carries less risk and quicker returns than organic growth alone. Rather than trying to build an organization from the ground up, it can be easier to buy an existing business that already has market share, infrastructure and local management in place.
An acquisition can facilitate quick expansion of a company’s product line, and creates the potential for synergies in support structure operations such as purchasing, distribution, and personnel. The purchase of a competing company can sometimes be a quick path to revenue growth, as is the acquisition of a related product offering or an enabling technology.
Our report acknowledges that acquisitions can be challenging for mid-market companies, but in another publication, “Solving the value puzzle,” we offer some suggestions on ways to make it easier. Leadership should start by analyzing their company’s needs and objectives – and then, if acquiring or being acquired seems like the right decision, by asking themselves a few simple questions.
- Does the target fit your long-term strategic goals? Keep the end in mind, to ensure the transaction is consistent with your company’s vision. Make sure company leadership is on the same page, and seek out objective insight; trustworthy advisors can help you remain true to your vision, or adjust it when necessary.
- What does the current financial situation of the target company mean in terms of long-term potential? Financial performance may have been affected by the troubled economy; determine whether any dip in earnings is temporary and addressable, or a sign of fundamental, permanent change. Be prepared to ask tough questions to determine what assumptions underlie company decisions and what trends are in motion.
- What are the potential synergies, and how can they be attained? Perform due diligence to make sure that you can realize the potential of the merger. Don’t just depend on what you’re told, or expect that others will do the work for you. Stakeholders expect change after a merger, so use that in your favor by moving quickly once the wheels are in motion.
By moving smartly forward as they consider M&A, mid-market companies can continue to lay the foundation for stronger growth tomorrow.