This series addresses various recession proofing strategies that can be implemented by your Chief Financial Officer or part-time CFO including:
· Acquisitions and Opportunities
With strategies and mechanisms in place around improving profitability, maximising cash, strategic funding and processes in place to review risks and mitigate them, challenging economic times will potentially present you a range of opportunities that might not be available to other organisations. Now is your time in the sun!
Economic Indicator.
At September 2019, the Australian annual economic growth fell from 1.7 per cent to 1.4 per cent – the weakest rate since September 2009. As growth slows, businesses find it increasingly difficult to achieve their targets and become more reluctant to hire additional staff and as staff leave may delay replacing them to help maintain profitability. Consumers continue to pay off debt rather than spend exacerbating the problem.
Acquisitions and Opportunities.
Your competitors are not performing as well as you. With your strong profitability and healthy Balance Sheet, business lenders (who still need to lend to make profits themselves) will be more than interested in lending money to you and because growth is sluggish, interest rates on debt will be attractive. An option available to you and few others is acquisitions. However more than 50% of acquisitions are considered a failure. So, what you look for and how you progress the opportunities is critical. Traditionally acquisition programs are the realm of large corporates. Smaller organisations simply didn’t have the sophistication. However the strategic and financial skills of your CFO or part-time CFO can also run an acquisition program that have the potential of evolving your business to the next level.
What is a program of acquisitions and why should you do a program of acquisitions?
Firstly, and perhaps obviously it is not a single acquisition. The acquisition does not end with the purchase transaction. The integration of the new business is frequently more problematic and difficult. Creating a capability of integrating acquisitions is a skill most businesses don’t have as they try and allocate already busy staff to take on an extra function in their spare time. Once you make the decision to commence acquiring it is necessary to build the capability of integration to maximise your likelihood of success.
Secondly, there is risk associated with a single acquisition beyond that of integration that can also be mitigated through multiple acquisitions. Especially when purchasing businesses to acquire a new product set, you can do all the due diligence you like, but sometimes it simply won’t work in your organisation. When you acquire multiple products or technologies it becomes more likely you will achieve success.
There are several reasons that you would do acquisitions:
- Buy less efficient or profitable businesses. Your improved efficiencies can improve their value once acquired.
- Complementary Products. Using your existing geographic reach and sales team you can sell more into your existing customers.
- Extend geographic reach. You can sell more of your products over new territories.
- Create specific synergies. A caution with this: many organisations over-emphasise the significance of this and the ability to achieve real synergies.
- Acquire skills or a capability to build additional strengths in your business. The cost of creating this capability could be more expense than acquiring it.
To optimise your integration capability, what is important is that you decide on a main purpose for the acquisitions. For example, the ability to train new sales teams about your products, is very different to removing cost from a business. Other elements such as unifying the culture of the combined entities will be largely common across most acquisitions. Having a team that have worked out what works well and continue to improve on it can make all the difference.
Should you want to develop an acquisition capability and pull away from your competitors, CFO Evolve’s, exceptional part-time CFOs could help you create it. We welcome you to contact us to ask us how.
About CFO Evolve. CFO Evolve have been evolving businesses to the next level since 2014. Our average customer growth is 24% year on year. Contact us to grow your business today.
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