The five major types of successful acquisitions of Acquiry have long been amongst the most popular articles online as well as the leading source of wisdom for business owners everywhere, since their first publication twelve years ago. Since then, I’ve continued to study and teach acquisition activity and strategies. This article is an attempt to revisit and explain the top five types of acquisitions, from the perspective of a business owner. While each type of acquisition is different in its own way, commonalities also emerge. The purpose of this article is not to discuss and evaluate the efficiency and value of different types of acquisitions. Instead, I hope to encourage you to continue your studies by perusing this classic article.
Acquisition Substantial Value. Acquisitions are often (though not always) the result of substantial cash inflows. Successful acquisitions require a significant amount of cash upfront to pay for various expenses (syndication, property, equipment, etc. ), and also require a clear strategy that describes what needs to be purchased and how much cash will be required, including any potential debt obligation from the target company.
Merger/ Acquisition Strategy. Substantial value and a clear acquisition strategy are only useful if the target company is able to execute the strategy. Some of the types of acquisitions include: a merger with a smaller or lesser competitor, an acquisition of a business by an acquirer, or a combination of acquisitions (acquisitions that include a buy-sell agreement). A successful merger or acquisition strategy will be executed if the target company can integrate the acquired business into its existing internal operating structures, and if the acquired company can meet the target’s competitive objectives. In addition, the combination of acquisitions will be successful only if the two companies can agree upon a price range that is appropriate for the combined entity.
Concentric Merger/ Acquisition. Also known as short term or quick on the take, concentric mergers are usually designed to increase the market share of a smaller company by adding a larger one. These acquisitions typically occur when a larger company is undergoing tremendous competition from rivals. Smaller acquisitions are designed to provide a company with additional operating room in anticipation of an acquisition. In addition, a concentric merger will often provide a company the ability to better service the acquired business.
Sales Force Integration. In order for sales forces to be successful, many companies must engage in serious recruiting efforts that involve professional sourcing and recruitment activities from smaller companies outside of their own industry. In addition to a professional sourcing and recruitment effort, many sellers also develop a close relationship with some of the smaller companies through which they receive revenue. Most sales force acquisitions are unsuccessful.
Picking Winners Early. It is important for companies to develop a long term strategic plan, one that is consistent with their own short and long-term business goals. In fact, one of the reasons why it is so difficult for companies to create successful acquisition strategies is because they have a limited understanding of the appropriate strategic approach. As such, companies that want to increase their value creation should spend some time understanding what makes a successful acquisition strategy work. By developing an effective strategic plan, companies can easily pick winners early in the process.