Acquisitive types may more easily beat the downturn

Hare: There is a real bright side to acquisitions in the current climate

Recently, Repton was acquired by Kelway and Anix snapped up by US services giant ACS. Beyond the fear of the unknown, acquisitions can be a positive force for customers and companies.

Having recently sold a technology business and an IT acquisition, I have direct experience of some of the issues involved. A large part of my role is engaging with proprietors who may be thinking of selling their businesses.

To say that bank finance is in short supply is an understatement. Many of the private acquisition deals we are seeing at this time involve successful companies ploughing in their own capital.

These organisations are hungry for growth and, having seen that organic growth is difficult right now, they settle upon the goal of growth through acquisition.

When selling businesses in a tougher market, owners must evaluate their priorities. Demand drop-off and the resulting price competition is squeezing margins. Few can pull in the profits they expected before the downturn.

If you sell to another reseller, the combined, bigger organisation may find it easier to survive and prosper. There may be economies of scale and cost reduction, through eliminating duplication.

The secret to making these acquisitions is for management teams to understand the critical business metrics, knowing what might be improved through better practices and where problems might lie. A new organisation may have more customers to target. If the two companies involved sell similar products or services, there is potential for cross-selling.

Meanwhile, lots of customers are trying to remove risk from their supplier relationships and trying to hand their business over to bigger, more stable companies.

Good staff will be valued in a successful acquisition and some may even get new opportunities within a larger organisation. It is also unlikely that a company will fund an acquisition without trying to keep the new subsidiary’s customers. Customers may get better service and more offerings from which to choose.

Founders of the selling business may end up in management at the new organisation or use the proceeds to fund a new business. Or perhaps they will just sail off into the sunset.

Matthew Hare is chief executive officer at CI-Net