The benefits of having an M&A strategy to play offensive, build capabilities and increase value

By Andy Harris

It’s no secret that business owners have had their fair share of turbulence this year, with most scrambling to identify new ways to play offensive, build capabilities, and retain margins. Now, more than ever, we see the benefits of considering M&A to be part of the corporate strategy. The reasons to consider M&A are abundant; however, I’ve identified three key reasons that are noteworthy regardless if your business was hit hard or not.

Marketshare: There is strength in numbers, and sometimes acquiring a business is the fastest and most economic way to increase overall market share. By combining companies that are an excellent strategic fit, you can pick up market share without eroding margins – and potentially even improve them – as you capitalize on the synergies between the two businesses. This can be emphasized further if the mergers also bring on IP/technology or products that are complementary – or better – than your current offering.

Footprint: For organizations operating within a dedicated region, aligning with a company in new territories can expand your reach and broaden your client base. Those businesses that currently have clients outside of their region with limitations on how to best serve them, growing into those areas can increase client satisfaction and overall retention rates.

Technology/Product offering: Regardless of how delighted clients are with your current offering, there could be a complementary product that goes hand in hand and can build on the existing momentum. We operate in the day and age where client and brand loyalty is at a premium, so building up your offering and becoming more full-service can provide a boost to your bottom line.

Addressing these three areas, knowing that speed is of the essence to keep a business afloat, acquiring vs. building it on your own can check a lot of boxes and, in some cases, at a lesser cost. So, what should CEOs be thinking about right now if M&A is a strategy they’d like to consider?

Performance is key. Not just with your business, but also with your competitors. Should you have been fortunate enough to be thriving and holding the lion’s share of the market, are there competing companies who haven’t? If the answer is yes, you may be positioned to acquire them at a better value than ever before. Doing so can be a crucial turning point for your business as you’re driving scale and thereby, profitability. Alternately, if your company performance has fallen off, what are the next steps to realign and emerge in a healthier position? It may be continuing to support your core business is the answer, but in others, looking to pivot and move into other markets and applications could provide top-line growth and bottom-line relief.

Another critical consideration is with the supply chain. With much of the world relying on Asia – China in particular – for their supply chain, businesses became abruptly aware of the need to rethink this strategy with the impact of Covid as factories closed and workers were in shorter supply in particularly hard-hit regions. This cascaded into broader considerations on how businesses can move some of their manufacturing and supply chains closer to home regardless of through M&A or grass-roots development. In doing this, companies will have more control overall so that when faced with choppy waters, not only will they have more options for recovery, it can expedite the process, too.

When the global recovery does start to happen, and market growth rates increase, M&A will undoubtedly play an essential part, especially if the strategic buyer is focused on supply chain concerns. Demand was still high for essential goods, and as the world transitioned from schools and offices to their homes, we saw an entirely new and unexpected need for items such as sanitization, home office equipment, and baking goods. I believe that the trend will be for companies to merge efforts, not only to be stronger together from a market share perspective but to pivot their capabilities to onshore manufacturing. For example, suppose a chemical plant makes products A and B, and they source product C from China and are impacted negatively by wait times and plant closures. In that case, they may look to acquire a company that manufactures product C or could repurpose assets to manufacture product C right in their back yard.

Another contributor to success is to work with an exit coach. The coach will help assess what the company and business owner need to be best prepared for the exit process that will lead to strong strategic interest and optimum valuation. The coach should be someone who has been through the strategic exit process themselves, ideally on both the buy-side and the sell-side. So the coach will be able to identify if the business is ready and what levers may be pulled to improve the outcome with a detailed execution plan.

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