IT industry news websites frequently distribute articles or press releases regarding the acquisition of another MSP or other IT service provider. These regular announcements would make you believe that an acquisition strategy is certain to increase your company’s market share, help you leapfrog ahead of your competitors, or develop a differentiated product offering. While it is possible to realize these benefits, it is not necessarily the perfect solution for every business.
Here are 5 critical questions to ask yourself to determine if an M&A strategy is the one for you.
Before you decide to merge with or acquire another company, first consider if it would be possible for your business to grow organically. Organic growth has many benefits. They include:
While these four benefits of organic expansion are enticing, the challenge is this: The IT services sector is constantly evolving, moving business and technology forward at an explosive rate. Even if you can finance your own expansion, build your own products and services, and have seen steady year-over-year growth, organic growth will take time – more time than if you chose to increase your customer base or expand your portfolio through acquisition. Can you afford to wait 18 months, two years, or more to realize your business goals or could your competitors move more quickly and take away any advantage you might currently have?
When considering if your current resources could get you where you want your company to be or if an acquisition would be appropriate to augment the expertise you already have, evaluate the skills of your current staff. Where do your teams excel and where are there gaps which you may need to fill? Think about this from a companywide perspective.
This is an important question to ask yourself, but it is often discounted as being less important than some of the others. You might answer, “Why is my motivation important? I have already made the decision that an acquisition is the perfect solution.”
Be honest with yourself when answering this question. Are you interested in buying another company simply because you have a large amount of cash lying around? Is your goal to increase sales by a specified amount over a specific period, enlarge your geographic footprint from regional to national, become a leading MSP, data center or IT service provider in a new industry vertical, or is there another reason?
Even if you do have cash in the bank, you may still be on the fence as to whether an acquisition is the appropriate option. That cash could be used for organic growth to hire more personnel, expand your marketing activities, increase product development initiatives, and enlarge your physical presence by opening new offices. On the other hand, we know that completing an acquisition can be costly upfront, but it is often less expensive in the long run after you include the additional time and resources you need to grow your business on your own.
If only a portion of the cash needed for an acquisition is readily available, how will you obtain the rest – through seller financing, a bank loan, an SBA loan, leveraged buyout, assumption of debt or other option?
No matter the company you choose to acquire, there are critical issues which will need to be taken into consideration up front, so they do not slow the integration process and potential growth.
In this post, we highlighted some of the key questions you should ask yourself to determine if acquiring another company is an option you may want to take seriously. Remember, this is a decision you need to make on your own. Don’t be swayed by industry experts, business growth strategists, or bloggers who express their opinions on how you can more quickly and efficiently achieve your business goals. The answer as to whether an acquisition is right for your company is unique to you and should be made by you based on your individual requirements.
In our next post, we will evaluate some of the benefits of choosing an M&A solution such as acquiring new technologies, access to an established pool of talent, immediate access to new sales channels, and more.