Buying a business to gain new customers

There are numerous reasons why one would buy a business – from securing supplier channels through to acquiring valuable IP or picking up assets from distressed companies at a reduced price. There are a huge range of possible approaches and benefits.

In a new series of articles, Business Sale Report will be examining the different paths to growth – and ultimately profit – through business acquisitions. And for the series’ inaugural post, we look at buying a business to gain new customers. No business can survive without customers, so for many, putting a strong customer base at the top of their acquisition criteria makes perfect sense.

Buy a business to save time acquiring customers

Providing a great product or service is obviously important, but it counts for nothing without a deep customer base. This can take time to build – a long time. So when buying a business, targeting a firm that already has a large and/or strong customer base offers a ready-made platform for both short-term and long-term gains.

Take the example of the East Midlands law firm Nelsons Solicitors, which acquired Derby-based rival Moody and Woolley in April this year.

Nelsons' chief executive Tim Hastings explained that the client base was a factor in the decision to purchase: "Moody and Woolley is a Derby firm which has a long history and a great reputation. It is an owner managed firm with a broad client base and we felt it was just the right practice for us to join forces with."

Founded in 1846, Moody and Woolley built its client list up carefully over almost 170 years, resulting in an attractive asset for the new buyers - one that would be simply impossible to grow organically in a short time frame.

For services companies such as law firms, buying rival companies to acquire their client list makes strong strategic sense – as well as giving the buyer the option of pushing new services out to new clients, it can reduce competitive pressure on prices.

Focus on synergies between you and your target acquisition

Of course, buying a business for its customer base makes most sense when there are clear synergies between an existing business and an acquisition target; this will make up-selling to the newly acquired customer base far easier. Conversely, don't get too distracted by profit margins and volume of customers; a client list is only of use to you and your business if they are interested in your existing core products and services.

A key point to consider when buying a business to gain new customers is how you will manage and maintain those customers post-acquisition. Always be sensitive to the sentiment of staff before during and after the acquisition, especially where there is a strong relationship between the customers and the staff. Unless this is delicately handled, staff may leave, jeopardising customer relationships. Sometimes the acquisition strategy involves only taking over companies where staff/customer relationships are very thin, thereby reducing exposure to this risk. But beware, sometimes those companies are reliant on technology to provide the connection with the customers and it is therefore important to ensure that IT systems are compatible or easy to integrate.
Often the scope of this goes far beyond the customer database or customer relationship management (CRM) system.

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A similarly motivated deal, also completed in April 2015, was financial services company Basware Corporation's acquisition of Procserve, a B2B e-procurement network for the public sector. Priced at just under £19 million, the purchase was fuelled by Basware's desire to get its hands on Procserve’s high profile clients, which include the NHS, the Department for Work and Pensions, the Ministry of Defence, and the Welsh Government.

Proceserve’s strong list of clients in the public sector gives the buyer, should they choose to incorporate the two businesses into one, immediate recognition in this space. This in turn makes it easier to obtain new clients in this sector while also opening the door for it to sell complementary services to the same clients.
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While the simplest route for growth through an acquisition's client base is to ensure their requirements match up with your services, that isn't to say that the right buyer couldn't find healthy profit in buying a business with a customer base that focuses on a different area.

With the right post-acquisition strategy in place, this is an excellent route for expansion into new markets, giving you a ready-made customer base to work with.

A reputable client base = a reputable business

A company's customer base is often indicative of its reputation, success and moral approach to business. Whether or not you are buying a business primarily for its client base, make sure you check out the customers carefully during the due diligence period; it can be a key determiner to whether or not you should proceed with the purchase. Doing so allows the buyer to make assumptions about the nature of the company and its broader reputation based on who has been working with them and for how long. It is not uncommon for part of the due diligence process to include actually meeting with key customers to discuss the relationship with the target company.

As billionaire Joe Manseuto, co-founder and CEO of investment management firm Morningstar Inc., said: “Once you create a loyal customer base, it's tough for a competitor to take that away.” Indeed, rather than competing for customers, a business purchase can offer a shortcut to customer acquisition.

Buying a business that has a loyal customer base on its list of assets is like buying a vineyard with grapes ready to pick – it eliminates much of the risk and uncertainty associated with a business acquisition and can instead often provide a smooth, clearer route to improved profits.

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