How to kick-off an inorganic growth strategy
Watch the webinar ‘A CEO’s Introduction to Acquisitions’ for an in-depth look at this topic.
We’ve written before about how opportunism isn’t a comprehensive strategy for companies looking to source acquisitions, even if you don’t have an aggressive goal.
But without a corporate development officer, how should busy CEOs focus their limited time?
“To get the most bang for your buck” when sourcing acquisitions, says Stenning Schueppert, currently managing director at CenterGate Capital and the former SVP of Corporate Development & Strategy at Total Safety, “the key is to find a very strategic deal.”
In a previous article, Schueppert mentioned the top three questions that determine any deal’s strategic value:
- Will this deal help you grow or supplement your geographic footprint?
- Will this deal help you sell a new product line, capability, or service?
- Will this deal add to market share?
A strategic deal checks at least one and ideally more than one of these boxes. So how do you find the correct targets? Often, especially if you’re just kicking off an inorganic growth strategy, the ideal transaction might be right in front of your nose. Schueppert recommends starting by considering a few of the following key questions which all relate to Porter’s Five Forces:
- Who do you think are your biggest competitors?
- Who did you just lose your last three bids/projects to? Who did you just win your last three from/against? (These are actually your biggest competitors.)
- Who has the best salesperson in your industry or market?
- Where did your last five employees get recruited away to? Where are your last five (or best) employees from?
- Who just designed a new hot product in your space?
“It’s the KISS principle,” says Schueppert: Keep It Simple Stupid. “It’s not rocket science — this is stuff that is intimately knowable by your sales guys, your executives, your HR department, by the guys on the shop floor. It’s common sense.”
But executives can sometimes get bogged down in details. Surprisingly often, Schueppert says, “I’ll talk to executives and ask them about their competition, and they’ll either say they don’t have any or they won’t know who it is. Everyone has competition, and everyone should know exactly who they are.”
Start by looking at those businesses, and analyzing which ones might be able to offer you the most valuable synergies.
Says Schueppert, “Whether you’re winning or losing contracts from someone, they’re clearly still a competitor. And if you merge forces with that organization, you can stop beating each other up on contracts. If you’re losing to them, you may look at the acquisition for strategic, possibly defensive, reasons. If you’re winning from them frequently — and they know that — you have the leverage and your purchase price for that organization is much more likely to be on the value side of the equation. But again, remember, in all cases: is one plus one at least two? If not, you’re back to simply creating a holding company and that will destroy, not create, value.”