Scale Up Through Acquisition
Originally published: 04.01.18 by Kenneth Goodrich
Growing your business via acquisition can be among the most rewarding ways to scale swiftly. Conversely, it can be the biggest business mistake you make. To be successful, there’s a refined, proven approach that can propel your brand to the promise land.
There are two main buckets to finding, choosing and closing a successful acquisition:
- Strategic acquisition — when you buy an organization with solid management, growth prospects and a history of profitable revenue generation.
- Customer acquisition — where you are interested in the company&rquo;s lead list and existing customer case. This is probably also an organization that is struggling to remain relevant and competitive.
A company that make sense for strategic acquisitions could be larger or smaller than your business, but are typically profitable, has sound management and tenured employees who will stay on post-acquisition. In the end, this helps grow your investment into one that makes sense over the long-term.
Companies to look at for a strictly “consumer acquisition” include those that are underperforming or en route to bankruptcy. Sometimes, the owner is simply ready to throw in the towel and have few appealing assets other than the phone number, website and lead list with a database of customers. With this type of acquisition, you can add to your customer base at a quarter of what you would with conventional, cold leads.
It’s a Small World
One of the most common questions that arises is, “How do I find potential HVACR acquisition targets?”
If you’re plugged in and connected to your network of industry influencers, such as trade associations and industry events, these types of opportunities are probably right under your nose.
When you know the players in your industry, and this includes those rising and falling, your targets become pretty clear, pretty fast. Once you start buying businesses and getting a reputation for it, they’ll start coming to you.
To Pay, What to Pay
When evaluating potential additions to your business, rarely does it make sense to look at whether the company owns their own building, how many fleet vehicles they have and other hard assets. Generally, these are in poor condition and have little value. Since, in most cases, you’re buying the customer base, you want to evaluate how many successful touch points — booked appointments, revenue in the bank — the company has had in the past year or two.
Knowing you’re likely going to lose a certain amount of customers in the transition, a safe tactic is to take their stated customer list and halve that for a realistic, post buy book of business. From there, it’s basic business math to understand the revenue generated from a typical customer.
Rarely does it make sense to look at revenue, because in most cases these companies are underperforming — hence the attractiveness to acquire them.
The Strategic Acquisition
While the approach to customer acquisitions is straightforward, the strategic acquisition is different altogether. Central to the puzzle: how can you integrate two management teams together? This is where clear, respected leadership is critical.
You need leadership to influence, so you have to be able to influence these people, both sides of the equation to do what’s best for the good of the whole.
Often, it’s called “the law of magnetism.” Like people tend to end up near like people. People who are driven to play the ‘A game,’ people who are driven to success try to make sure that they find their way to success. That’s the pathway to successful integration.
Who Stays, Who Goes?
Most times with customer acquisitions, unfortunately it doesn’t make sense to keep most of the employees. The business is underperforming for a reason. Whether it’s poor leadership, morale or a lack of employee motivation — or all of these — the basic elements of a successful operation aren’t working.
Underperforming HVACR businesses have underperforming people and to be successful you need a prolific environment. It’s important to think about having an environment of award and achievement. When you have a high level of accountability, most people who have worked in an underperforming business don’t want that.
Sharing the fact that the new direction of the company will include opportunities for everyone will motivate employees to put their best foot forward.
It’s a good idea to let the world know about your acquisition — internally and externally. Employ public relations and social media tools and expertise to share the news. It’s critical that current vendors, partners and others know about your move. It is also a good opportunity to make the competition sweat a little.