Acquisitions Should Compliment, Not Substitute, Good Corporate Growth Strategy

If you own or manage a business and intend to use the current softness in your industry as a springboard to pick up market share in 2010 and 2011, you need to carefully consider your growth strategy.

Organic Growth
To what extent can you fund and develop growth internally? What are your risks and returns on any capital investment you make? What access do you have to different types of capital and what are the overall costs? And, perhaps most importantly, how will your growth strategy affect future cash flows?

Growth through Acquisition
Will 2010 and 2011 provide some exceptional acquisition opportunities for your business? More than likely, yes. But the most successful business owners will only use mergers and acquisitions as one tool in their overall growth strategy. Acquisitions should be used to gain access to new markets, products or intellectual property where organic growth would be a less effective alternative, but only if it also complements a company's strategic plan.

Challenge your assumptions
As you are considering an acquisition, you need to challenge every assumption you have about the market and the opportunity before proceeding. In times like this, there is a rebalancing of the market. The days of easy credit and pure financial engineering will likely be replaced with one where organic growth, operational strength, smart planning and business acumen are more important.

Acquisitions are often rationalized as a faster and more cost effective way of growing, but that typically doesn't take into account the planning, time, disruption, financial and organizational resources that are required to successfully integrate companies after an acquisition. Synergies on paper are not realized without a thorough integration plan with detailed and realistic profitability targets. We'll talk more about that in the coming weeks.

Does it add value?
An important rule to remember is accretion and dilution. After integrating the two companies, will the acquisition add incremental value to the combined companies? Will it increase the overall value of the group (accretion) or dilute the value of the combined companies? Accretion is good. Dilution is bad.

Go for Growth
A little over 2000 years ago, Virgil told our ancestors that
Fortune Favors the Bold.

However, if Virgil were a business owner today, maybe he would a few caveats to that statement:

Fortune Favors the Bold ... so long as you have scrubbed the numbers, appropriately analyzed the risk, developed the most cost effective capital structure and are confident that your growth and profitability strategy will add value to your company.

There are going to be some great acquisition opportunities next year and we are already seeing buyers setting up for the start of 2010. Our message today, however, is to make sure that any acquisition fits your overall growth strategy. Now is the time to plan that strategy and then find the acquisition opportunities before anyone else does.

This is the first in our series of Secrets to Successful Mergers & Acquisitions.

Next post - Transferring Business Ownership (Part I)
Following post - Business Growth through Acquisition (Part II)

Call ClearRidge for impartial and expert advice on your corporate growth strategy: (918) 392-2900.

All rights reserved. Copyright: ClearRidge Capital, LLC, 2009.

About ClearRidge Capital
ClearRidge Maximizes Enterprise Value as a business, financial and strategic advisor to midsized US companies. ClearRidge’s Directors have completed over 200 MandA transactions, provided restructuring advice and secured new and replacement debt and equity for companies across the US and Canada.

Mergers and Acquisitions includes buying, selling, merging and valuing midsize companies. Restructuring includes financial, operational and strategic restructuring. Corporate Finance includes advisory for raising and replacing debt and equity to provide the lowest cost of capital. Turnaround, Bankruptcy and Crisis Management services include debtor and creditor advisory, bankruptcy support and turnaround management. We provide top tier advice and relationships with Middle America values.

For further information, visit www.clearridgecapital.com.