Types of Business Acquisitions

There are two main ways for a company to grow. One is via increasing sales and the general size of a company’s operations over time – a strategy often referred to as “organic” or “internal growth.” The other is via acquiring another company or a number of companies.

Organic growth can take time, in some cases many years. In the interim, your competitors can gain a strong foothold in the market.

Choosing to grow via an Acquisition can speed the process dramatically. Growth via Merger or Acquisition can provide an instant platform for a company to expand overnight, to fill a gap in the market, or to gain significant competitive advantages by unlocking synergies and economies of scale.

Growth by Acquisition can enable companies to expand into new markets far more rapidly. Your target may have spent many years developing a network of strong contacts or supply channels. By choosing to Acquire you immediately fast-track the process, enabling your business to gain traction in new markets instantly.

Horizontal vs Vertical Acquisitions

There are two main ways to grow your business via Acquisitions. Horizontal Acquisitions occur when you target operations similar to your own business (often competitors) to fast-track growth. 

Vertical Acquisitions occur when you choose to acquire a business that sits in your current supply chain. For example, a manufacturer may choose to acquire one of their key suppliers to ensure supply of raw materials or key components. Conversely, a manufacturer may also choose to acquire retail chain to ensure consistent distribution of its products. Vertical acquisitions are very common in larger businesses. Companies such as Apple and IBM have used a vertical acquisition strategy consistently over the years to accelerate their growth and to sure up supply chains.

It is important to consider the cost analysis going forward of growth by acquisition versus organic growth.  Factors such as time, human resources, research and development costs,  and marketing expenses all need to be closely evaluated to ensure you are making the correct choice.

Other Key Considerations

– What is the Return on Investment (ROI) over time?

– What key challenges will you face merging the new business into your existing operation?

– What changes will you need to make to the new business you are acquiring, ie, rebranding or upskilling of staff? What are the costs?

– How is the best way to grow your acquisition?

– To what level will the new business be integrated with your existing business?

Challenges – Staff Culture

One important consideration when you choose to grow via acquisition is staff culture. Whilst a deal can stack up financially, often cultural aspects are overlooked. The importance of staff culture and happiness is critical to the ongoing success of any business. Staff who may have been high up the chain in a smaller operation can often find themselves becoming a smaller part of a much larger wheel. Therefore, it is important to ensure you consider this as part of your due diligence process.

How many potential targets should I consider?

Typically once we have finished our initial interview and engagement with you we will target up to 100 hand-selected “appropriate” business targets. Each of these will then be confidentially approached by us. It is important to remember that at any one time only a small selection of these will be in a position to consider selling their business. Quite often they are also unprepared for sale. This is where our specialist team of Brokers steps in to collate each potential acquisition’s information for you in an organised manner so that you can make an informed decision on the next step. Through our many years of experience, we know exactly what questions to ask. We will collate all of the information for you including tax returns, staff profiles, equipment lists, current market share, and other key data points.

​The collective experience of our Brokerage Team is second to none. From large corporate mergers and acquisitions to small local business sales, our trusted brokers have had years of transaction experience. We fully understand and appreciate the high importance of confidentiality and will always take due care to ensure all transactions are completed with minimal disruption to your business and staff.

What Business Can I Buy to Make Money?

How do I make lots of money?

It’s a question most of us have on our minds from time to time. In a world that is constantly changing, the answer to this question is also changing daily. Here’s the short answer.

The dynamics of business are evolving at a speed we’ve never seen before. Dot com businesses with no shop fronts and few staff are rapidly overtaking traditional models.

Big business no longer requires large retail space. Banks are rapidly closing branches in favour of going online. Other retailers such as Harvey Norman, David Jones and Myer are surely feeling the pinch from online giants Kogan and Amazon.

Newsagencies are also suffering. The global trend of receiving our news online is slowly but surely reducing the demand for retail newspaper sales. Entertainment also has changed. 10 years ago, you could regularly rent a video or DVD from the local Blockbuster Store. Today we simply log on to Netflix or Stan and click to view a smorgasbord of entertainment.

The modern-day success is more of a concept. The rich list has essentially worked out how to effectively go around the traditional models and deliver goods and services more efficiently (and at a fraction of the cost).

If you’re looking at buying a business, it’s more important than ever that you consider the huge impact that online competition may have in the future. Certain service-based businesses such as salons, clinics and car wash services are largely protected. But businesses relying on a product or service that can be delivered online are now directly in the firing line. Other important matters to consider may be the ease of how the business can be replicated, and the uniqueness of the product or service being offered.

If you can find a unique business or product that has managed to find a niche in the online world, you will be starting in a great place. If you’re trying to figure out how to make lots of money, then you need to consider the constant rise of technology and the potential competition you may encounter along the way.

Selling a Business? Make it Buyer Friendly

Building a business can take years. It can be a lifetime’s work. You might make mistakes, but they can be fixed along the way. When it comes to selling however, you only get one chance – that’s it!

There comes a time when an owner of retail, wholesale or service provider business wants to sell.

It may be that you have had the caravan parked in the driveway for three years and just can’t find the time to take off, or a voucher for a glamorous hotel stay hiding in a drawer. Some of us may be looking for a change of profession or have our eye on a bigger and better opportunity. In any case, the business must be sold.

All these conversations have one question in common. How do you sell your business, and what do you have to do to get full price?

Selling Options

There are many options available to the business owner when it comes to selling a business.

An owner can:

1. Advertise or introduce buyers to the business and have their accountant and solicitor draw up the contracts of sale and sell, which is very difficult when you’re trying to run your business.

2. List the business for sale with a real estate agent and have them advertise the business for sale and introduce interested buyers. There are very few real estate agents that have the skill to manage a business sale transaction if they find a buyer.

3. Engage a business broker to prepare the necessary paperwork often found in a business profile, that the buyer can appraise, advertise the business for sale and introduce interested buyers, advise the owners solicitor and sell.

4. Engage a specialist business broker that has sold businesses just like yours to produce a business profile, advertise, market to known industry buyers, investors looking to buy into your industry, qualify genuine buyers, produce contracts, manage the solicitors and accountants for the landlord, buyer, sellers and sell.

Up front information

Make it easy for the buyer. Present your business to the market in the best possible way you can. Provide all the necessary information for the buyer to make a decision up-front.

Most buyers have a short attention span when it comes to buying a business. If they don’t have enough information to make a decision to buy within ten days of introduction, they tend to walk away.

Let’s give an example. If you were at an open inspection for a new home, and the owner showed you the front yard, backyard and living room, but the rest of the house could only be seen next week. Not exactly giving you confidence, is it? Business is exactly the same.

Buyers don’t just want to see the front of the shop, office, website or warehouse.

To make a decision to buy, they will need operational detail that includes:

–   Sales

–   Cost of goods

–   Profit and loss statements

–   Rosters

–   Weekly wages

–   Rent

–   BAS statements

The list goes on. The good news is that experienced business brokers know how to do this and will work with you to produce what is needed to best present your business.

If you are worried about confidentiality, have the buyer sign a confidentiality agreement. Buyers know that when you sign this document you are bound by law to only use this information only for investigating a purchase. These forms are readily available from brokers and solicitors.

The truth is that there are too many buyers in the marketplace. They are looking for businesses to buy, and to some degree will pay top dollar if they find it easy to purchase. If it’s too hard and they have to wait too long to provide their solicitor and accountant full details, they will walk away.

Golden Rules for Sellers

1. Don’t ask too much.

Buyers will look at many businesses. To make a sale, your business has to be good value for money. Return on investment – of money and the time needed to run the business – is everything.

2. Have a good reason for selling.

After buyers ask what the price is, they may ask why you are selling. If you answer “I have been working 100 hours per week, my lease is about to end, and I can’t make any money” then you should be looking at selling the equipment not the business.

3. You need to provide proof of income.

Full tax figures should be readily available with BAS statements to match. In the unlikely event that you’re in love with the ATO, you should be prepared to discuss how the business runs so your broker can explain the best way to handle difficult questions from a buyer.

4. You should be willing to train.

Most buyers will need some assistance in the first few weeks of their ownership. Keep in mind that the higher prices paid for businesses come from buyers new to your type of business. They have to pay for the business’ goodwill as they don’t have the expertise to start one themselves.

5. You will not compete.

Any new owner wants to be sure that you, the seller, will not be competing for market share with them. You can’t sell the business and then start another in the same area.

6. You need to provide a complete list of unencumbered plants and equipment sold with the business.

All buyers want to know what they are purchasing in the way of plant and equipment, and most often the fair market value of the equipment. If there are rental agreements in place for security cameras or leased items, they need to know about them.

7. You will need to provide a full copy of the lease or freehold details to buyers.

Keep in mind that secure tenancy is very important to a buyer’s financiers and banks if money is to be borrowed to purchase the business.

8. You will avoid surprises.

Smoke and mirrors will destroy the buyer’s trust and will send them running not walking to another opportunity.

9. You will ask agents, brokers, and solicitors: how many businesses like mine have you sold?

It’s important when engaging professionals that they have experience in what is needed to complete your sale.

Get in touch with us for more information about making your business buyer friendly. With our experience, knowledge and insight these steps will be as easy as A, B, C!