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Don’t I Need Cash to do an Acquisition?

by on April 10, 2014

I was talking to a first time CEO recently.  His company is growing rapidly and that’s exciting and scary at the same time.  He’s an aggressive CEO, he moves forward knowing that he’ll figure things out.  Yes, he may make mistakes but he is confident enough in his abilities that those issues don’t stop him. Eventually the conversation turned to M&A. He said that he’s interested in growing through acquisitions once he has a lot of cash.

Does that make sense to you?

Not to me.

Here’s a CEO that is taking control of his operations, and specifically his sales strategy.  He overcomes obstacles he comes across along the way and doesn’t create obstacles to stop himself.  But he’s creating obstacles for himself around M&A and completely ignoring what is the fastest vehicle for growth.   By taking this position this CEO won’t even LOOK at acquisitions thinking, “I can’t afford it”, and that’s simply not true. Part of that is ignorance and part of it is fear.

Education

There are a lot of ways to pay for an acquisition.  Many CEOs think they have to have all of that figured out before they start but they don’t. It’s good to be comfortable with the options before proceeding but it should NOT be an obstacle to using M&A as a growth vehicle. They need to be aware of them, and their own limitations, but they will tailor the financing to meet the deal just as the CEO would tailor the sale to meet the prospective customer’s needs. They may not be able to do all of the options but they can probably do one of them. Once they understand their limitations and capabilities they can find the right target to buy because it will act as a filter.   Find the right target for you under your circumstances.

Fear

The other reason this position is inconsistent is fear.  The effort seems overwhelming and the outcome seems uncertain.  But it’s not.  You will have companies to look at buying and you will have companies interested in buying you.  That’s the point.  That’s the purpose: to be talking to and looking at other companies and opportunities ALL THE TIME.  After all, >95% of companies get acquired.  Big companies buy smaller companies.  That’s the food chain.

How vs. Why

This CEO was getting bogged down in the “How” and losing site of the “Why”. How is simple, there are several ways to pay for an acquisition.  Heck, the acquisition can even pay for itself! The important point to focus on is WHY.  Because acquisitions are the fastest way to grow your revenues and make you a big player in the market.  I discuss this in-depth in my post, Size Matters. You may be a small company, you may be a young company, you may even be a start-up, but you don’t have to act like one. Big companies grow through acquisitions and strategic transactions all the time.  You can too.  You don’t have to be big act big.

p.s.

If you’re wondering how you build a company that you can sell for a premium in a few years, contact me to discuss the Valuation Amplification Process.

I also invite you to download the white paper and learn the 5 step process on How to Quickly Increase Your Valuation: a Proven 5 Step Process.  http://www.therevenuegroup.net/free-offer.html

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From → Integration, M&A, Strategy

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