June 16, 2023 //
We continue to focus on the importance of the preparations you make before the formal acquisition process begins. Adopting the right mindset and making robust preliminary preparations sets you up for success in the end.
In this post, I want to focus on another critical facet that you need to consider concerning your plans to buy a business—what I call The Compelling Why.
The Compelling Why is the interconnected suite of all-important Why questions behind every successful acquisition—Why make an acquisition? Why now? Why is this the type of business you think fits your plans for the future?
I want to distill the question to its essence and ask you, simply:
In my experience, there are two answers to that question:
Whatever particulars are unique to your business, in most cases you will fit into one of those two categories. It will serve you well to know which of the two you’re after when you start your work with M&A Advisors. The type of company that we’ll be hunting for and ultimately approaching hinges on it.
You might be surprised how many very successful companies haven’t thought through the very basic Why of their plans for acquisition. At this point in the series, it shouldn’t surprise you to hear that the clients who come through our door with a clear and well-developed vision and strategy are usually the ones who can answer the question without a second thought.
Most acquisitions that Stillwater Capital handles represent companies bought to extend the existing business. The target company works with the same product or service and will permit you to expand your offering or improve it. An acquisition might represent the best way to geographically extend your existing business—opening up regional or international markets or improving logistics over distance, for example.
Whatever the reason, if the acquisition is part of your strategy to extend your existing business, this will inform the search parameters for your M&A Advisors as they reach out to the market.
Extension is a perfectly valid strategy for growth, but it does require you to think carefully about the future. A case in point—years ago, then-flourishing retail bookseller Indigo Books planned to extend their business. They bought Chapters, another major brick-and-mortar book retailer. The purchase fit their criteria for extension: it eliminated major competition, provided them with greater geographic power, and grew their company by every metric that mattered to their strategy.
At around the same time, though, a small digital bookseller with an online shopfront called Amazon was developing a strategy that would ultimately and permanently transform the entire retail sector.
You don’t want to be left behind. Experienced M&A Advisors will help you look for acquisitions that extend your business wisely, with an eye to the future.
Perhaps you are buying a business because your strategy for the future is about transforming your existing business into something new. An entirely new product or service offering is on the horizon, a new technology is promising to radically disrupt your market, or a previously non-existent market might remain closed to you unless you change.
A transformative acquisition will make high-level demands on your organization throughout the process. The best way to ensure success is to start building consensus early, at every level of the business, about your strategy and your goals. Transformation breathes new life into a company, but it is disruptive. It’s helpful to have as many people on board as possible, as early in the process as possible.
Extension and Transformation will each point your business in a different direction in the acquisition process. It’s critical to begin by focusing on the right goal, orienting your M&A Advisors to the right prospects, and dictating the preparations you’ll need to make for post-deal integration of the new company.
Either direction will necessitate challenging, searching conversations with your advisory team. Insight and a focus on the final goal are required to proceed wisely—insight regarding the state of your business now and projections for its future, how other businesses around you are operating, the larger ‘weather patterns’ at play in the market… in every case, very different measures are taken depending on whether extension or transformation are at the finish line.
One of the benefits of doing what we do at Stillwater Capital is that we get exposed to best practices and innovations in successful businesses in every sector. We encounter exciting people quietly transforming the way business is done. Dedicated professionals who love to learn gain a lot of wisdom and powerful experience with every deal.
That’s why I hire driven, inquisitive people. Whether you’re considering buying a business to extend the reach of your company, or to utterly transform what you do, you want that kind of curiosity and acquired wisdom working for you on your advisory team.
Whatever direction your company is headed, I invite you to start a conversation about the acquisition process with us at Stillwater Capital.
Written by: Douglas Nix