One of the fastest and most effective ways to gain momentum and market share is through the acquisition of a competitor. Acquiring a competitor has two distinct advantages – it allows you to eliminate competition; and it allows you to gain new products, customers and employees.Before you break out the checkbook and make an offer to your archrival, you should consider a few things:
- Look at their numbers – It is important to know what you are buying. One of the most surefire ways to know is to run the numbers. Look at historical trends. Many companies trim back expenses and try to stretch profits in order to make their company more salable. Have sales shown steady improvements over the course of time? Have the cost of sales remained consistent?
- Look at their product and customer mix – Is there a good crossover between their products and customers? Will their customers willingly become your customers? Do you gain complementary products and services that will allow you to serve your customers (and theirs) better?
- Look at their products and employees – Has the company had any turnover of key personnel? If one of their top employees recently resigned to start a new company, you may be at risk of losing the customer base you are paying to acquire. Be sure to evaluate their intellectual property such as patents and trademarks.
- Evaluate their motives – Why are they selling their company? Are they preparing to retire? Is someone in the family ill? Or, are they getting out before a class action lawsuit hits? You should try to learn all you can about a company before making an offer.
- Evaluate your own motives -Are you buying your competitor to better serve your customers and theirs? Are you buying them to eliminate their brand from the competitive landscape? Are you interesting in buying them out of vanity? Carefully examine your real motives. If you are acting out of emotion rather than making your purchase based on numbers and competitive advantage, you’re likely to make a mistake.
- Look at their valuation – There is a good bet that the asking price is the “jumping-off-point” and not the expected, final price. Seek out a professional who can help you with valuation and make sure you’re getting a fair price.
- Evaluate their culture – If your competitor’s customers and employees are accustomed to working with a company whose values vary wildly from your own, the acquisition may not be a good fit. Be warned: A good company + a bad company does not necessarily equal a bigger good company. Too often, it means the ruination of both companies.
Acquiring your competitor can be a great way to gain customers and market share, but you will want to go into it with your eyes wide open. Be thoughtful and deliberate and always be sure to do your due diligence. If you are considering an acquisition, speak with a Zinner valuation expert.