Companies have a number of tactics they can use to grow their company. While efforts such as expanding sales channels, improving product, investing in marketing and more, are essential and typically front of mind, many companies overlook the growth opportunity that comes from combining with another company through a merger or acquisition (M&A).
Buying or selling a business can be a good option for a company depending on their specific needs and circumstances. In two decades of experience in representing companies on both sides of the acquisition, a few reasons for buying and selling crop up again and again. With that, we outline some of the most common reasons buyers and sellers choose to pursue an acquisition below.
Common Reasons Companies Buy
Three frequent reasons for a company to purchase another include an interest in expanding their product or service, gaining talent or growing their bottom line.
A company who has a goal to grow revenue or profit by introducing new products and services or product features should start first by clearly identifying the details of those opportunities. By distinctly mapping product needs, companies can then identify products and services already on the market.
Next, the company should evaluate whether it is best to build, buy or partner to offer each new feature, product or service. If other companies already offer similar products, buying can be an effective and likely faster way to bring the new or improved products and services to market. This type of acquisition may have added strategic benefits as well, such as eliminating a competing product in the market, quickening the speed-to-market versus competitors and more.
Companies also look to acquire others to gain new or expanded expertise from talented employees at other companies, a tactic commonly referred to as an “acqui-hire.” Acquiring another business with talented employees can bring new technology skills, a more innovative culture or even rapid capacity expansion to a company. This rationale is particularly common when the company acquired is early stage or even pre-revenue.
Financial goals are sometimes the primary driver for acquisitions such as a desire to add revenue, profit or market share. In these transactions, the buyer often looks for direct or adjacent competitors who will deliver financial results quickly and for a sustained period. The position and operation of the business are important for the buyer primarily from the lens of the financial payoff.
Common Reasons Why Companies Sell
Tech companies can grow strategically through a sale by achieving scale, accessing a broader appeal and customer base and to facilitate a leadership transition.
Any company working to grow and reach the next level of revenue, sales or market awareness knows that it takes investment to accomplish those goals. Selling the company and joining a larger organization can be a transformative, quick way to achieve this growth. A purchaser often delivers the capital and support for growth, whether in the form of financing, an established sales force or a readily accessible customer base.
Another motivation for sellers related to scalability is a desire by the sellers to fold their product into a broader product suite to appeal to more customers and strengthen its value proposition. Developing a point solution as an independent company can be a great way to establish a foothold with a high-quality product quickly, but it also can create challenges in selling the solution in a crowded marketplace.
After achieving success with a strong, focused product, some companies determine that integrating into another company’s broader platform through an acquisition can provide a path to greater customer adoption and revenue.
Companies also pursue selling when their founder or owner approaches retirement or develops a strong desire to pursue another opportunity without a clear leadership succession plan in place. Independent companies in this situation may have internal employees or leaders who want to buy out the ownership or may look to develop deals with third-party companies to pursue an acquisition.
Buyers and sellers have many motivators when it comes to M&A. The rationales described in this article tend to be the most common. While it requires careful thought and negotiation, companies should consider M&A as a valuable tactic when they are looking to grow, in addition to the organic efforts they more naturally employ.
Reach out to T3 Sixty SVP Michele Conn at firstname.lastname@example.org to see if M&A is a good fit for your company growth strategy.