Business acquisitions: market awareness is everything

The UK economy might be out of the mire but this is no time for backslapping; this is the time for businesses to build on their returning prosperity. In this Insight article we take a look at the improving fortunes of British businesses and how business acquisitions can play a critical role in enabling further growth.

According to the latest corporate snapshot from Lloyds Bank, optimism among British businesses is at its highest level in 22 years.

The bank’s recent survey found that 65 per cent of UK businesses are confident that sales will rise over the next six months, compared to the seven per cent that said they thought sales would fall. Furthermore, exactly half of companies think exports will increase for the remainder of the year, with only six per cent saying they expected a decline.

In simple terms, this reflects the news that has dominated financial headlines over recent months; Britain’s economy has successfully clawed its way out of recession and the country’s businesses are finally seeing clear skies on the horizon. And among the well-performing businesses in the UK, data from the CBI suggests that the mid-sized firms are outshining the rest. Indeed, companies with between 50 and 499 employees, which account for just one per cent of all the companies in Britain, are responsible for employing 16 per cent of the workforce and bring in 22 per cent of the UK’s total revenue.

This brings us to the key question: what is behind this growth? Of course, this is not just an important question in times of returning optimism, but an ever-present question in the mind of any businessperson.

In a recent report Deloitte outlined its own ‘three rules for growth’, based on a study of the 1,000 fastest-growing British businesses. The common ground it found in these well-performing companies was that many operated in a niche business-to-business market; had a long-term vision for growth; and was adept at exploiting new export opportunities.

It is fair to say that although valuable research, Deloitte’s findings could not be described as revolutionary; the market you operate in is largely predetermined from day one while the need for a long-term growth strategy is a well-established maxim in the business world. This leaves us with the third rule for growth, which is the most interesting of the trio and also stands out as a key tactic for smaller enterprises.

While Deloitte focuses purely on export opportunities, it can be said that the ability to exploit new areas for growth is generally a critical factor in supporting a business’ upward trajectory. One such example is adopting an aggressive strategy towards inorganic growth – seizing acquisition opportunities to enable growth into new geographical or specialist markets is an effective way to stimulate growth.

In order to pursue a strategy of growth through business acquisition, there are two things that companies will need. The first and most obvious is finance. Fortunately, mid-sized companies represent a very attractive investment opportunity because they offer greater returns than larger enterprises thanks to their ability to grow rapidly while they are also safer than small companies that are on the whole more volatile. As Dan Matthews recently wrote in Raconteur’s mid-market report, this means that these well-performing, mid-sized businesses now have various funding options available to them, from venture capitalists and crowdfunding through to more traditional bank lending.

Assuming therefore that a business can gain access to the finances they need to support inorganic growth, the second barrier to overcome is sourcing the right acquisition. Naturally a buyer will be looking for the right business (or assets) at the right price, but this can often be a tricky process.

Market awareness is everything; keeping up-to-date with the latest acquisition opportunities could provide competitive advantage over a rival – this in turn could be the difference between success and failure. One of the best ways to stay abreast of the latest market developments is to monitor which businesses are being hit with winding-up petitions or are entering administration – these distressed businesses usually represent the best value for money and offer great turnaround potential.

In the light of the changing fortunes of many British businesses it is only right that optimism has returned to the UK’s shores. The scene has been set now for companies to build on this early success by identifying growth opportunities and acting on them. And for those able to pursue faster growth, business acquisitions represent a great strategy taking advantage of the favourable economic climate.

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