M&A Strategies 101: How to Ensure Your Denver Business Acquisition Succeeds
The right business acquisition can catapult your Denver business to greater heights of success, but many companies fail to plan and execute the right M&A strategy. Here’s what you need to know as you consider your Denver business acquisition strategies.
What Are Business M&A Strategies?
At its core, your strategy is the reason for the deal. Your motivation determines which types of deals you will find appealing. Most deals fall into one of two categories:
- Financial: Financial buyers want to see a significant financial return on their investment. They may attempt to improve a company then exit, or streamline a company’s operations to make it more profitable. Venture capital and private equity firms often make financial deals.
- Strategic: Strategic buyers engage in M&A to meet strategic goals—gaining access to valuable intellectual property, for example, or reducing competition in the market. Strategic buyers are often other industry players—including competitors.
Six Common Rationales for Deals
The reason for your M&A deal can affect its odds of success. These six strategic rationales are the most likely to succeed:
- Improving the target company’s performance.
- Consolidating two businesses to reduce excess capacity or remove competition from the market.
- Shortening the timeline to market for a product.
- Acquiring valuable resources, such as intellectual property or human resources.
- Capitalizing on economies of sale in specific sectors.
- Investing in young, growing companies with plenty of growth potential.
Some other rationales may also work, but involve taking on much more risk. They include:
- Eliminate or reduce competition in a fragmented market.
- Consolidate to raise prices and reduce competition.
- Consolidate to reduce overall capacity.
- Accelerate the rate of expansion.
- Radically transform a business.
- Purchase a business for a lower price than its actual value.
- Get rid of excess cash and invest it.
- Reduce tax liability.
Getting the Most Out of the Deal
Whether your acquisition is strategic or financial, it’s critical to get expert oversight—especially if your deal rationale is one of the more complex motives, such as reducing tax liability or deploying excess cash. The right investment banking firm can help you review your options, assess how realistic each option is, and guide you through the process. Buying a business is a complex undertaking demanding significant planning and knowledge. Ensure you have the information you need by hiring the right team.
