There are several potential benefits to acquiring a company, including:
- Increased market share: By acquiring a company, you can improve your market share and reach a broader customer base.
- Access to new technology: Acquiring a company can give you access to new technologies and intellectual property that can help you improve your products or services.
- Economies of scale: By combining operations with the acquired company, you may achieve economies of scale, leading to cost savings and increased efficiency.
- Talent acquisition: You can bring on talented employees from the acquired company, which can help you build a stronger team and improve your overall business.
- Diversification: Acquiring a company in a complementary industry can diversify your business and reduce the overall risk of your portfolio.
- Synergies: By combining operations with the acquired company, you can realize synergies, such as cost savings from consolidation or increased revenue from cross-selling.
Acquiring companies can use a variety of strategies to create value, but only a few are likely to be successful.
There is no one-size-fits-all solution for making acquisitions successful. Instead, each acquisition must have a specific, well-thought-out strategy for creating value. In our experience, successful acquisitions tend to have a clear strategic rationale, while less successful ones often have vague justifications such as seeking international expansion or filling portfolio gaps.
Empirical analysis of different acquisition strategies is difficult due to the variety of types and sizes of acquisitions and the lack of a standardized way to classify them. In addition, companies may claim that an acquisition has strategic benefits when it is really just about cost cutting. Based on our experience, acquisition strategies that create value typically fall into one of six archetypes: improving the performance of the target company, removing excess capacity from an industry, creating market access for products, acquiring skills or technologies more quickly or at lower cost than they could be developed in-house, exploiting a business’s industry-specific scalability, and identifying and supporting emerging winners in the industry.
These strategies should be specific and concrete, not vague concepts like growth or strategic positioning. It’s also important to ensure that the acquisition price is reasonable, as overpaying can negate any potential value creation.
Author, Rune Holsvik