When the owner of the Athletes Foot brand announced last week that it had bought the New Zealand importer of Van’s and Doc Martin’s, their share price rose by 55%.
While part of the reason may have been they bought, what my kids tell me, the best footwear there is, the bigger reason was they bought it for a very good price and it was a good strategic fit.
Likewise, Toowoomba law firm, Shine Lawyers had grown from a local practice, to now a public listed company through not only focusing on personal injury and litigation but acquiring many other law firms across Australia.
It too has done this well and its share price has risen 47% over the past twelve months.
While care needs to be taken with an acquisition, it has a number of benefits for growing your business.
One of the key benefits, especially in the current economy, is gaining a strategic advantage.
This advantage may be gaining access to a broader customer base.
The advantage could be access into markets for your product that you have not been able to reach.
This strategy can work well by buying out one of your competitors.
Another strategic fit is buying one your key customers so that you can make certain of sales of your product and increase the sale of your product,
We worked with a local company that had developed a broad market for its product.
They were acquired by one of their key suppliers.
The supplier used the combined reach of their joint companies to grow interstate and establish a strong business with a widening market and geographical reach.
This also provided them with protection from regional industry downturn.
Through all this, they still stuck to their core business.
Other benefits of an acquisition, besides enabling you to grow fast, is economies of scale.
The bigger sales volume enables you to buy cheaper and increase your gross profit margin and your bottom line. This is provided the growth is well managed.
There are disadvantages as well.
Problems can arise where there is a big culture difference.
This can undermine the planned benefits.
Another problem can be buying a business that is not what it seems.
Due diligence is very important to ensure that these problems are uncovered before you buy.
This way you can decide whether the purchase is a show stopper or the price needs to come down.
How you finance the purchase is important as it has an impact on your cash flow.
I have found that it is good to involve the bank early in this process.
Doing this before hand enables you to run scenarios to get a clear idea how much may be borrowed, depending on the security available and the cash flow generated.
With many businesses doing it tough, now could be the time to acquire a business at a good price. If the fit is right it is a way to move your business quickly to the next level.
Peter Ambrosiussen is the managing partner of Ambrosiussen Accountants & Advisors www.ambrosiussen.com.au
View LinkedIn profile – http://www.linkedin.com/pub/peter-ambrosiussen/29/171/a24
Published by Toowoomba Chronicle www.thechronicle.com.au on Saturday 28 March 2015