Growth through Acquisistion
It really surprised me recently how many responses I got to the notice I sent out about a reasonably large Auckland web business for sale. I've been thinking since about some of the potential pluses and minus of growth through acquisition. It can certainly fast track business growth, but here are some things I would asking myself before leaping in:* How long will it realistically take to a Return On Investment (including interest paid)?
* Can the CMS and / or hosting systems be integrated and if so how easily?
* If they can't be integrated, what are the likely support costs of the new system and how long would I be likely to have to support it for?
* What risks am I taking on around hosting? In other words, how mission critical are the sites and is the hosting risk adequately offset by the quality of solution?
* How well do the target markets of the two businesses fit together? Are they the same or somewhat different? How will any differences affect the nature of my business and my ongoing marketing plan?
* How well do the main business activities fit with my existing business?
* How will the transfer affect customer loyalty? I have heard of cases where this has been positive as well as ones where it has been negative. Is customer retention locked in through contracts or systems in any way?
* Does the brand of the company I'm purchasing have tangible value and if so what should my brand strategy be? Dump it, keep two or merge brand in some way?
* Do I want equipment, staff, leases or do I just want the customer base? Am I starting a new branch?
OK, so having raised all of these I'm not trying to put you off. Actually it was notable that a few of the businesses enquiring had purchased businesses in the past and mentioned that they were very pleased with the acquisition.
The flip side of all this business sale stuff was wondering why web businesses usually have such a low EBIT (Earnings Before Income Tax). Obviously people have low confidence in the security of business on a web company's books. I'm guessing that there is concern that the web is a fickle place where business can migrate quite rapidly. So, for those of you who are building up a business that you'd like to sell one day, what can you do to improve this perception? A better website? Good contracts? Lots of repeat work from the same customers? What else?
Posted by John Jones ~ Wednesday 23 April 2008
