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Growing your business quickly can be a challenge. However, growing your business through a vertical merger or acquisition can be done with relative speed, and at a relatively low cost. A vertical merger is about merging with a business in your industry: your suppliers or your customers. For example, a car dealership may want to merge with a small independent insurance broker (to improve onsite insurance services) or a bakery that acquires or merges with a coffee shop (to help sell its baked goods).
The difference between mergers and acquisitions is often not well understood. A merger is when two businesses merge operations, usually on a voluntary basis. The goal is to achieve a win-win for both businesses. An acquisition is where one business acquires or buys the other. The goal of the business buying the other business is to win; that doesn't mean the other business has to lose but that is the common outcome. Your business can grow through both merger and acquisition, however it is important that your growth plans accommodate the challenge of managing changes that will result from merging with, or acquiring, another business and still realize your strategic plan.
A merger or acquisition is a significant challenge to manage effectively. It involves ensuring a smooth integration between the two businesses; which might include lay-offs or re-assignments to different departments. It also involves ensuring that the two organizational cultures are merged effectively into one. Decisions will have to be made quickly and effectively, even while you integrate the one business into the other. Questions such as how will you communicate with customers, how will you capitalize on the additional production and strengthen your market position, how will you improve efficiencies, are just the tip of the iceberg. It's a lot of work to effectively merge with, or acquire, another business; you need to ensure that the benefits are significant enough to make it a worth while venture (it also needs to fit with your strategic plan).
When should you consider a vertical merger or an acquisition for your business? For that matter what about the importance, or relevance, of horizontal mergers? A horizontal merger is growth by merging, or acquiring, a competitive business. You might want to acquire your competitor to quickly grow your product line (adding the competitive products to your product offering). Or you might want to acquire their customers and sales revenues and grow your market share. A horizontal merger would be a good strategy if you wanted to quickly expand your diversification plan. It would also be a good strategy if you wanted to acquire your competitor's key assets (people, equipment, resources for example). In any of these strategies - vertical mergers, horizontal mergers or acquisitions - you need to stay focused on what your overall vision is for your business; the strategy needs to align with your vision.
Growing your business through acquisition or merger is inorganic growth; and it can be an expensive strategy so you need to ensure that this investment pays off. Whereas organic growth is internal to your business and it occurs through internal improvements, operation efficiencies, new product development and sales. There are numerous key success indicators for a valuable acquisition or successful merger. Some of these success factors are: the acquisition or merger offers the opportunity to reduce costs significantly through economies of scale and new synergies; the acquisition or merger allows you to satisfy customers that were unhappy with the existing service (for example, by acquiring a competitor you gain more staff to improve your service); your business is able to manage the change processes necessary to integrate two businesses successfully; the acquisition and merger will help your business increase market share in a cost effective manner; the acquisition and merger is strategically aligned with your business plan. Before you decide on an inorganic growth strategy, hire an accountant to handle the merger or acquisition accounting.
During the past decade, mergers and acquisitions have become very popular. Not all of these mergers and acquisitions have been successful; the costs have outweighed the benefits. A vertical merger strategy can have a higher opportunity for success than a horizontal merger or an acquisition because often the management of change is more successful and less adversarial. As a strategy for growth, use a merger acquisition checklist to consider vertical mergers.
The difference between mergers and acquisitions is often not well understood. A merger is when two businesses merge operations, usually on a voluntary basis. The goal is to achieve a win-win for both businesses. An acquisition is where one business acquires or buys the other. The goal of the business buying the other business is to win; that doesn't mean the other business has to lose but that is the common outcome. Your business can grow through both merger and acquisition, however it is important that your growth plans accommodate the challenge of managing changes that will result from merging with, or acquiring, another business and still realize your strategic plan.
A merger or acquisition is a significant challenge to manage effectively. It involves ensuring a smooth integration between the two businesses; which might include lay-offs or re-assignments to different departments. It also involves ensuring that the two organizational cultures are merged effectively into one. Decisions will have to be made quickly and effectively, even while you integrate the one business into the other. Questions such as how will you communicate with customers, how will you capitalize on the additional production and strengthen your market position, how will you improve efficiencies, are just the tip of the iceberg. It's a lot of work to effectively merge with, or acquire, another business; you need to ensure that the benefits are significant enough to make it a worth while venture (it also needs to fit with your strategic plan).
When should you consider a vertical merger or an acquisition for your business? For that matter what about the importance, or relevance, of horizontal mergers? A horizontal merger is growth by merging, or acquiring, a competitive business. You might want to acquire your competitor to quickly grow your product line (adding the competitive products to your product offering). Or you might want to acquire their customers and sales revenues and grow your market share. A horizontal merger would be a good strategy if you wanted to quickly expand your diversification plan. It would also be a good strategy if you wanted to acquire your competitor's key assets (people, equipment, resources for example). In any of these strategies - vertical mergers, horizontal mergers or acquisitions - you need to stay focused on what your overall vision is for your business; the strategy needs to align with your vision.
Growing your business through acquisition or merger is inorganic growth; and it can be an expensive strategy so you need to ensure that this investment pays off. Whereas organic growth is internal to your business and it occurs through internal improvements, operation efficiencies, new product development and sales. There are numerous key success indicators for a valuable acquisition or successful merger. Some of these success factors are: the acquisition or merger offers the opportunity to reduce costs significantly through economies of scale and new synergies; the acquisition or merger allows you to satisfy customers that were unhappy with the existing service (for example, by acquiring a competitor you gain more staff to improve your service); your business is able to manage the change processes necessary to integrate two businesses successfully; the acquisition and merger will help your business increase market share in a cost effective manner; the acquisition and merger is strategically aligned with your business plan. Before you decide on an inorganic growth strategy, hire an accountant to handle the merger or acquisition accounting.
During the past decade, mergers and acquisitions have become very popular. Not all of these mergers and acquisitions have been successful; the costs have outweighed the benefits. A vertical merger strategy can have a higher opportunity for success than a horizontal merger or an acquisition because often the management of change is more successful and less adversarial. As a strategy for growth, use a merger acquisition checklist to consider vertical mergers.
About the Author:
To learn more about success factors for a vertical merger; diversification options, and other business strategies to build and grow your business, visit Kris Bovay's More For Small Business site.
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