Helping Your Acquisition Growth Strategy Deliver Long-Term Value
Organic growth or growth by acquisition? This is a strategic decision that CEOs, CFOs, and executive teams must constantly weigh. Both organic and acquisition strategies should be bespoke and driven by company, industry and competitive dynamics. Strategies can be focused on core growth (e.g. growing share), adjacent growth (e.g. developing new products or services), or breakout growth (e.g. expanding into new markets).
Organic growth strategies are typically developed by a company’s leadership team. Looking at the team's core competencies and strategic or technological advantage can help shape organic growth pursuits. But sometimes executing on organic strategies can't happen quickly enough to achieve the necessary growth rate.
Acquiring another company to drive growth can be promising, but according to academic research, over half of M&A transactions fail to deliver on the expected value. As a result, M&A growth strategies must be carefully researched, designed, and executed.
While outside investors like private equity or venture capital firms may help direct and shape the strategy, they are primarily focused on ensuring capital and resources are available and allocated appropriately and to ensuring the management team maintains the appropriate level of focus.
Growth Mindset Matters
According to research from McKinsey & Company, leaders that adopt a growth mindset are 2.4x more likely than their peers to outperform. Whether in pursuit of organic or acquisition growth strategies, how executives approach these challenges will influence the results.
Source: Choosing to grow: The leader’s blueprint, McKinsey & Company
Executing M&A Successfully Requires Careful Planning
If you do choose to pursue M&A as part of a long-term growth strategy, careful planning at each phase of the M&A lifecycle is the key to success. Common M&A strategies include:
Common M&A Strategies
| M&A Strategy | Desription |
|---|---|
| Horizontal | The acquisition of a competitor to increase market share, reduce competition, achieve economies of scale. |
| Vertical | The acquisition of a company operating upstream or downstream in the supply chain. The objective is typically to improve operational efficiency, reduce costs, control supply chains, or gain access to key inputs or distribution channels. |
| Market-Extension | The acquisition of another company to expand into new geographic markets or regions to increase customer base / sales opportunities. |
| Product-Extension | The acquisition of a business with complementary products or services to enter adjacent markets, expand the customer-base or cross-sell products to new and existing customers. |
| Roll-Up | A strategy of acquiring a number of smaller firms in a fragmented industry to consolidate the market, achieve economies of scale, and often to capitalize on multiple arbitrage. |
| Bolt-On | The acquisition of a complementary smaller business to enhance existing capabilities, products, or expand the customer base. |
| Defensive | An acquisition to prevent competitors from gaining a strategic advantage, to protect an existing market position, or to block competitors from entering key markets. |
| Distressed | An acquisition of a distressed business or asset at a discount, often as part of a restructuring or bankruptcy process. |
| Joint Ventures | A contractual agreement between to parties to share risks, resources, and capabilities for mutual benefit in specific growth areas. |
Understanding the Phases of an M&A Lifecycle will Lead to Results
Once an M&A strategy is developed, executing the acquisition and building the target company into your corporate growth strategy involves numerous stages. Developing an M&A playbook, identifying acquisition targets, performing due diligence, valuing target companies, negotiating acquisitions, raising financing, closing a transaction and developing an integration strategy are all key components to long-term success.
Expand your M&A Team
If your company does not possess in-house M&A strategy and execution expertise, you should leverage outside advisors and Board members to avoid costly mistakes and position your company for long-term success.
Founded in 2015 to provide world-class investment banking and strategic advice to founders, CEOs, CFOs, Boards of Directors, family businesses, private equity firms and other institutional investors, Keene Advisors was founded as a benefit corporation with a focus on advising mission-driven businesses. Our team has advised on over $40 billion of M&A, capital raising and restructuring transactions over the last 20 years.
Contact today for a complimentary consultation to discuss your M&A playbook.