Expanding your business through acquisition

As the government takes increasingly strident steps to rebuild the post-recession national economy, the importance of building businesses rapidly, primarily through the purchase of smaller or bolt-on companies, is becoming increasingly apparent.

A number of moves and meetings throughout September have highlighted the fact that Britain's entrepreneurs and the small businesses they foster are being seen as the backbone of viable and sustainable growth. Speaking at MADE, the Festival for Entrepreneurs, held in Sheffield in September, business secretary, Vince Cable, emphasised the importance of small businesses and new enterprises in pulling up the slack left by a contracting public sector.

"We have hundreds of thousands of very good small companies in Britain," he said, "But they are going to have to grow rapidly in order to absorb people and keep the company growing." He warned, "If it doesn't happen, the economic strategy simply won't work."

Shortly after MADE, a deal was announced that exemplified the benefits that can be drawn from the purchasing of a similar, smaller business. Shred-it, the on-site destruction company that manages the disposal of redundant documents and office waste, added a Welsh document disposal firm to its portfolio.

The taking-on of South Wales Shredding's two sites increased Shred-it’s national presence to 17 locations around the UK. Building their portfolio through purchase of a successful small firm, rather than through the creation and subsequent fostering of proprietary branches, has given the firm many benefits.

The outlay and investment involved in setting up two new branches has already been made, and a smart acquisition will often be priced at a discount, meaning instant cost savings. It also means that the two locations have already proven their value, and have an established foothold in the market that Shred-it is now free and able to build upon.

The company’s European executive vice president, Robert Guice, pointed out, "It will give us immediate and additional resource to expand beyond our location in Bridgend and take on more customers in South Wales."

The wisdom of purchasing small businesses has also received backing by figures from the market information company, Experion, that demonstrate the comparative strength of so-called 'micro-businesses'.

Experion found that businesses that employ a staff of just one or two have risen from just 150,000 in 2005 to more than 400,000 in 2010 and that, crucially, they have been found to suffer the lowest insolvency rates and have the second healthiest financial score compared to other businesses.

Potential investors and buyers are already beginning to value the micro-business sector. David Barnett, a business broker with Sunbelt Network, said he has a list of more than 300 people interested in taking over small companies – and with the retirement of enterprising baby-boomers imminent, he is expecting the number of companies on offer to see a sharp increase. "The next decade is going to be huge for this industry," he said.

So, as the economy strengthens and more money is plowed into the nurturing and development of small enterprises, forging expansion through buying small businesses is a clear path to economic success.

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