Should You Acquire Companies To Grow

There is a common belief that acquisitions are the sure fire method to growth: Are they? You first need to analyze logical reasons to acquire another company:

To enter a new geography: You want to expand geographically and your analysis demonstrates that acquiring a company will provide a faster return on investment (ROI) than a start-up operation

To gain new customers for your offering: You are in the copier business and believe that if you buy a company in an adjacent space you will be able to continue to sell them the products or services of the company you acquire as well as gain their copier business.

To expand your portfolio: This is the opposite of the gaining new customers for your offering in that you buy a company with the expectation that you will be able to sell their products or services into your accounts.

Selling into the acquired customer base and selling the acquired technology into your customer base are the most common and logical reasons to buy companies. You see this all of the time in the tech world, with examples including HP’s acquisition of EDS, Google’s acquisition of Double Click and AdMob, and Oracle’s dozens and Cisco’s hundreds of acquisitions.

The most common acquisition in the copier space today is undertaken with the goal of acquiring to gain base. At one point, when unit sales were increasing year over year that made a lot of sense— but does it today? If your only goal is to replace the MIF—and you aren’t a manufacturer so you aren’t gaining any economies of scale at the factory—I think it is difficult to justify. You are paying for 1,000 units of MIF to hopefully, and it is a risky assumption today, to sell 1,000 units over the next (four) years.

Price always matters, but in a declining year over year space price is paramount. If you buy a MIF of 1,000 units today you can almost bet it will be 800 in two or three years so make certain you take that into consideration when calculating out the value of the base you are buying. Don’t overpay or your payback period may stretch into a decade, which would be an unacceptable ROI.

If there is a small but competent MPS company in your area they may make for a good acquisition so you can bring their expertise into your copier base, assuming you have the correct type of companies in your base. If you are an MPS company you may consider acquiring a copier company that has the proper mix of customers. For an MPS company acquiring a managed services company for their expertise in the desktop IT space and remote monitoring and resolution is also a consideration.

The bottom line—acquisitions may be a great growth strategy for your company. Like all major business decisions give it careful consideration before jumping in.