Growing a company’s revenue can come from organic or inorganic growth.
- Organic sales growth refers to the increase in a company’s revenue achieved through existing operations and product lines, excluding any revenue generated from acquisitions or mergers. It reflects the company’s ability to enhance sales through internal efforts such as improved product offerings, increased customer demand, or enhanced marketing strategies, rather than relying on external factors such as acquisitions. This type of growth typically slows down over time.
- Inorganic sales growth is the increase in a company’s revenue resulting from external factors such as acquisitions, mergers, or partnerships. These can lead to significant sales growth but require additional planning and resources to achieve success.
Acquisitions are one of the largest sources of inorganic growth and can turbocharge a company to get to the next level. Successful acquisitions start with a clear understanding and thoughtful analysis of what the acquiring company will achieve in the acquisition and if it aligns with your current strategic plan.
Critical steps in the process include:
- Strategic Alignment: Ensure that the goals, objectives, and overall direction of both the acquiring company and the target company are in sync. This includes aligning business models, market positioning, and long-term vision to maximize synergy and enhance the overall success of the acquisition. Clearly articulate the purpose of the acquisition.
- Cultural Alignment: A harmonious cultural fit can foster smoother integration, enhance collaboration, and contribute to the overall success of the acquisition. Misalignment in cultures can lead to challenges in communication and employee morale and can hinder the realization of synergies and success. Consider retention packages or contracts if there is a risk of key employees leaving.
- Due Diligence: Review financial and tax records, assess legal obligations, review contracts, scrutinize operational processes, evaluate customer and employee relationships, analyze potential risks, and ensure compliance with regulations. Thorough due diligence involves bringing in experts and helping uncover any issues or liabilities that could impact the success of the acquisition.
- Financial Modeling: Review historical and projected financial statements, challenge assumptions for projections, and assess valuation. Financial modeling involves projecting future financial performance, assessing valuation, and analyzing the impact on key financial metrics. Accurate financial modeling aids in the decision-making and negotiation of the purchase price.
- Negotiation of Purchase Price: Consider factors such as financial models, comparable sales/acquisitions, growth potential, market position, intellectual property, or other critical assets being acquired. Both parties aim to find a fair value valuation that reflects the company’s intrinsic value and aligns with strategic objectives.
- Clear Communication: Maintain transparent and open communication with all stakeholders, including the company being acquired, employees, investors, customers, and all interested parties. Clear communication builds trust and minimizes misunderstandings during the complex process.
- Successful Integrations: Align cultures, retain key talent, harmonize processes, and effectively combine systems where appropriate. Clear communication, a well-defined integration team and plan, and continuous monitoring of progress are crucial for a smooth and successful integration post-acquisition.
- Post-Acquisition Follow-up: Periodically review the deal model and list of projected synergies and assess progress.
Successful acquisitions can lead to tremendous growth and financial benefits for the acquirer. The CFO plays a critical role in this process, and the Florida CFO Group has numerous partners with deep experience in successful acquisitions. Hiring the right person can avoid bad or failed acquisitions, mitigate risks associated with the process, and reach a fair purchase price to fuel growth.
The Author
Barry Brover is a distinguished Partner at the Florida CFO Group and a financial executive with a proven track record of significant accomplishments and leadership skills in a growing private or public company and had led numerous acquisitions. Leveraging his deep financial and operational experience and knowledge of retail, wholesale and supply chain, and education technology, he is an asset to any company. Check out his LinkedIn profile.
Contact Us
Have questions about anything discussed in this article, or are interested in what valuable insights a CFO has for your business? Conversations are free, so do not hesitate to reach out at info@floridacfogroup.com, and let us explain how our services could be the right fit for you.
