How to Buy and Build: Growing Your Business Through Acquisitions

An Instant Guide For Entrepreneurs

Guy Rigby

• Publisher: Harriman House
• Year: 2011
• ISBN:
  9780857191946
• Topic: Business
• Subtopic: Entrepreneurship
• Index: Business

This eBook is about business planning for entrepreneurs.The author of this instant guide from Harriman House, Guy Rigby, has also written From Vision to Exit, which is a complete entrepreneurs' guide to setting up, running and passing on or selling a business.

How to Buy and Build

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

— Warren Buffett

Going for growth

For successful entrepreneurs, curiosity, drive and passion fuel a constant quest for renewal and growth. They leave no stone unturned and they never, ever give up. It’s inspirational and awesome to watch.

In this book, we’ve looked at the main ingredients required to make a successful and sustainable business. We’ve considered vision and strategy, management and finance. We’ve talked about leadership, marketing and branding. We’ve understood the impact of technological breakthroughs and the almost unlimited potential of the global village. If you can tick all the boxes, you’re ready to run a big business.

There’s always the exception that proves the rule but, for most businesses, early sales success gives way to a flatter growth curve, with many hitting a glass ceiling at some point in their development. This may be because they’ve saturated their local market or encouraged the emergence of competition. It may be due to a lack of focus on product development or ineffective sales and marketing. There are a host of possible reasons.

If your business is successful and profitable but bumping up against a glass ceiling, ask yourself why. If it’s because of internal issues or problems, address them. If it’s because of geography or competition, or the need for product or service diversification (or similar), then you might want to consider the attractions of a ‘buy and build’ strategy to help you achieve your goals.

The term ‘buy and build’ is most commonly used in the investment community. For example, a private equity firm that pursues a buy and build strategy will typically buy a company in a particular sector and use it as a platform to buy other businesses in that sector. By taking this approach, both cost and management synergies can be found (because you won’t need to duplicate all the functions) and large businesses can be built in a relatively short time.

You don’t need to be a private equity firm to pursue a buy and build, or acquisition, strategy. Making acquisitions may be the best and most effective way to grow your business. If you buy the right business you can instantly bolster your reach and overall capability. You can gain instant ownership of the acquired company’s products, brands and services, along with their staff, facilities, technology, IP and other assets. Economies of scale may enable you to leverage your supply chain more effectively, driving down your input costs and increasing your profit margins. In addition, you may be able to save significant operational costs by removing duplication and sharing HR, finance or other back office functions.

For example, “a magazine publisher may purchase another company to expand its existing stable of titles. Car dealership groups may acquire new dealerships to broaden their geographical footprint,” says Brian Livingston, head of mergers and acquisitions at Smith & Williamson. “Extra turnover and gross margin are added to the existing business without any material increase in overheads.”

The combined impact of these benefits can enable businesses to accelerate their growth, whether by scaling up their activities in a chosen sector, taking more and better control of their supply chain or by diversifying into new markets, all at a far faster pace than organic expansion might allow.

“Many farmers have diversified away from core farming activities to expand into land management or leisure,” explains Brian. “Other businesses choose to diversify into complementary activities – so a business providing catering and security may choose to add cleaning services.”

The possibilities are endless, but it’s not a one-way street. If you’re going to pursue an acquisition strategy, you need to understand the risks. First, you’ll need to finance your acquisitions. This may mean taking in new equity or debt, putting you and your business at the mercy of third parties, particularly if things go wrong.

Then there’s the planning, due diligence, completion, post-deal integration and cultural alignment, putting pressure on management time to successfully bed down the acquisition and smooth some inevitable ruffled feathers.

There will be multiple issues to address but, if you’ve done your due diligence on the business and are happy with what you’ve found, the most challenging aspect will be the people. An acquisition will normally mean a realignment of people on both sides, with some changing their roles and some departing. The unexpected, as well as the expected, will almost certainly happen.

It’s quite normal, for example, for key people in the acquired compa...

Table of contents

• Cover
• Publishing details
• Praise for From Vision to Exit
• About the Author
• Preface
• How to Buy and Build
• From Vision to Exit
• Other Business eBooks From Harriman House