Why Opportunistic Acquisitions Are the Wrong Strategy in Today’s Market

There are two main ways that CEOs can grow a business: build or buy.

The former requires increasing sales and is also referred to as “organic” growth. The latter comes through acquisitions of other businesses and is known as “inorganic” growth.

When it comes to acquiring another company to achieve growth goals, there are very real potential benefits — but also very real risks. It’s crucial that acquisitive business owners take a thoughtful and thorough approach to the process.

Pipeline

Many business owners take an opportunistic strategy when thinking about acquisitions. They tell themselves that if someone comes to them with an attractive deal, they’ll think about it.

But opportunistic acquisitions are generally not an ideal tactic in today’s competitive market. CEOs should treat their acquisition process like a sales process. Building a pipeline of potential targets, which reflect the company’s broader strategic growth goals, can ensure that CEOs find success with inorganic growth. Deals regularly stall or fall apart, for a thousand different reasons.

With diligence and negotiation periods that can span months at a time, issues are bound to come up mid-acquisition. A pipeline gives you a back-up plan.

Leverage

The more leverage you have as an acquisitive business owner, the more likely you’ll be happy with the outcome. Leverage in M&A generally requires optionality. When evaluating strategic acquisition targets, CEOs should make it their goal to have a variety of prospects to compare and and contrast. Variables like region, culture, and size can all affect an acquisition’s long-term viability.

History shows that, in at least half of all cases, after the deal closes the acquiring company is dissatisfied with their return on investment. A misguided opportunistic acquisition can potentially have a crippling effect on the consolidated organization. It’s crucial to maintain a robust pipeline to gain the optionality necessary to make the best possible purchase.

Efficiency

Searching for and performing due diligence on acquisition targets can be an arduous process. It’s crucial that CEOs not take their eyes off company operations while evaluating prospective businesses to acquire. Online deal sourcing platforms like Axial can help business owners efficiently build a pipeline of targets that fit their acquisition criteria, without taking undue attention away from business operations.