Hundreds of businesses are bought and sold everyday. Each “deal”
is different. Every acquisition candidate needs to be
systematically evaluated prior to purchase as to its existing
competitiveness within their targeted markets to determine what
strategic augmentations need to be made to maximize eventual
return on investment.
As a business buyer you will need to estimate anticipated
financial return on your investment based on how the purchased
company will improve its strategic competitiveness within its
targeted markets or enter new markets after you purchase the
company.
What Competitive Strategy Makes Sense?
There are four fundamental strategies to compete in any targeted
market:
1) A Product/Service Based Strategy:
* Product/Service features and user benefits
* Perceived buyer value
* Technological or design advantages
* Breadth of product line or service offerings
2) A Positioning Based Strategy:
* Targeting specific user classifications
* Product/Service pricing
* Targeting specific product/ service applications
* Positioning versus a specific competitor
3) A Manufacturing Based Strategy:
* Cost reduction focused
* Leveraging throughput and output flexibilities
* Manufacturing customization capabilities
* Unique manufacturing certifications
4) Distribution Based Strategy:
* Local, regional, national, international distribution
* Means of product/ service distribution and delivery
* Inventory guarantees
* Just-In-Time or product consignment methods
Although any one or combination of these defined strategies may
be used to improve future market competitiveness, another
analysis needs to be made to define what company resources are
available or will be needed to effectively implement any given
strategy.
A qualitative and quantitative assessment needs to be made of the
to-be-acquired company’s; financial resources, tangible and
intellectual assets, talents or human resources, overall company
core competencies and status of legally protected technologies
or intellect.
As the potential new owner of a business you need to weigh the
acquisition candidate’s realistic ability to effectively compete
within any given targeted market against the overall profit or
revenue growth attractiveness of that same given target market.
Prior to purchase, decisions must be made whether you will:
1) invest more $ to obtain growth, or 2) selectively invest, or
3) “harvest”, get what return you can and diversify into new
product and market directions as quickly as possible.
The matrix below best illustrates a potential business buyer’s
strategic choices relative to growth of a future acquisition:
OVERALL MARKET(S) ATTRACTIVENESS
HIGH MEDIUM LOW BUSINESS ABILITY HIGH 1 1 2 TO EFFECTIVELY MEDIUM 1 2 3 COMPETE: LOW 2 3 3
1 = Invest for growth
2 = Selectively invest
3 = Harvest: no additional investment/diversify quickly
Although this two dimension graphic may be insightful it needs
additional dimensional influences of consideration; product/
service life cycles, breadth of geographic focus, level of
competition, anticipated competitive response and expiration of
protected technologies, to name a few characteristics.
Buyer Beware!
The clear reality of buying a business is you always learn so
much more about the company post purchase than you effectively
could pre purchase. This practical uncertainty in buying a
business must be offset with careful buyer due diligence,
effective company resource definition and conservative resource
allocation planning in advance of company purchase.
Also, pursuing a new market, either with new or existing
products, can be fraught with major negative business
consequences. The cost of making a wrong market choice decision
can be significant. Actual capital outlays and realization of
opportunity costs from NOT pursuing another “better” market
alternative can be significant. The natural tendency for a new
business owner to make changes in the company strategy must
sometimes be delayed.
Like in any viable business purchase due diligence process,
whatever a potential business buyer can effectively do to
define, analyze, quantify and realistically forecast future
resource requirements for the bought company to grow, to meet
ROI goals, in advance of purchase, is ideal. In reality it is
far more effective to develop a strategic and resource
allocation plan prior to acquisition, knowing that you will make
changes to the plan post purchase, than to not plan at all!
About the Author:
Mark Smock is President of
,
the FIRST international business buyer directory of its kind.
Business Buyer Directory provides a non-traditional means for
proactive business buyers to locate businesses for sale
worldwide that meet their exact registered purchase criteria.
