Lack of Growth Through Acquisition Mindset
December 16, 2023
by an intermediary from Gonzaga University in Tacoma, WA, USA
I find myself quite baffled by the dynamics at play in the business brokerage space. The majority of buyers for the listings we handle are individual buyers—people accustomed to working in Corporate America who aspire to become entrepreneurs, much like I did five years ago, and have done multiple times since. While this demographic constitutes the bulk of our clientele, there's an interesting contrast in the mindset of most business owners and sellers.
Typically, business owners initially consider selling to a competitor—a strategic buyer who could benefit from acquiring their business. However, in the realm of small and medium-sized businesses, it's rare for competitors to express interest in buying out other businesses. I find this surprising, and I wonder why more strategic buyers don't explore growth through acquisitions. Unlike larger corporations that routinely pursue growth through acquisitions—expanding their talent pool, acquiring proprietary assets, reaching new geographic markets, and boosting revenue and cash flow—small and medium-sized businesses seem less inclined to take this route.
I applaud those who decide to buy existing businesses instead of starting from scratch. It's a less risky endeavor, and we need more entrepreneurs willing to take on this journey. However, I'm also puzzled as to why more strategic buyers don't engage in acquisitions. Banks often offer more favorable terms to strategic buyers, making it easier for them to enter deals with minimal upfront costs. Strategic buyers can leverage their existing infrastructure, potentially saving on overall cash flow, and achieve significant revenue growth immediately upon signing an asset purchase agreement.
By becoming a strategic buyer, one can double their revenue, enter new markets, and enhance their business in a single stroke, a stark contrast to the arduous process of organic growth. I believe that if more business owners understood the benefits of strategic acquisitions, we could see a positive shift in the business brokerage landscape. It's essential to encourage both individual and strategic buyers to overcome their apprehensions, understand the acquisition process, and contribute to the successful transition of businesses. This is crucial, especially with the looming 'silver tsunami,' to ensure a more efficient transfer of businesses and prevent unnecessary delays.
https://youtu.be/CtCktj7oBAQ
in Toronto, ON, Canada
1. I think most small business owners put organic growth on a pedestal. They see the idea of expanding into a new market or geography on their own as more impressive than acquiring someone else.
2. Ego. This a big one, and I have watched it play out first hand. The older generation seems to have a hard time separating business opportunity with personal grief. For some, the thought of handing over a cheque to someone that you have been painfully competing with for decades is a non-starter!
3. As mentioned in the post before - skills. Having M&A knowledge, or just the interest in learning those skills, just isn't a top priority for most soon-to-be retiring business owners.
from University of Illinois in San Diego, CA, USA