Many larger companies are looking for strategic acquisitions; acquiring smaller, but quickly growing businesses that present a tremendous potential for growth and profit when combined with a larger company’s array of assets. This is especially true these days with the rise of startups: quickly growing small business ventures, later on acquired by corporate giants for their promising value.
Most company sales run along predictable patterns of industry norms, but a strategic purchaser could pay a significant premium for a business like yours because they are looking at the value of your business as it fits with the plan for their company. Rather than forecast your future profits and estimate what that cash is worth today, a strategic buyer is calculating the economic benefit of combining your business with theirs, which can be informed by a business valuation.
So why would a larger company want to acquire a smaller venture like yours? Here, we break down the top five reasons they consider, so you can get ahead and prepare your business to become a prime acquisition:
Supply Chain Control
If you are a company supplying parts, materials, and even services to the bigger players, chances are, they could be looking at acquiring your business in the long run. Doing so allows larger businesses you supply to be less dependent on one of its suppliers, which is a key value driver in business valuations.
Being a profitable, albeit smaller business yourself, your company presents opportunities for a larger, potential purchasing company to increase their sales by virtue of acquisition. By acquiring your business, a purchaser can sell to your existing market which can greatly propel their sales as well. This also allows larger companies to increase their inventory or, essentially, the number of goods they can sell; when successful, they can reap the rewards of maximized profit.
Revamp Product Line
If your business sells modern and revolutionary, or even just potentially value-added products that a larger company can capitalize on or leverage for improved performance in the market, chances are, a business valuation is likely to inform you of just how profitable your business is as an acquisition.
For instance, if your product has features or capabilities that can be integrated into a larger system that fuels the operations of a purchaser’s products, such as enhanced functionality they can sell their customers on, selling your business to them can provide additional returns.
Tap into a New Market
By acquiring your business, a larger company can tap into the market you already stand out in, and gain access to an established customer base they can sell to. Consider this: a larger company with no presence in your local area is looking to expand into this untapped market, but the cost of building a presence from the ground up is not the most profitable option.
So what do they do? By looking into business valuations of existing, but smaller, businesses already established in the area, they can instead choose to purchase any of these these, based on which one has performed best over the years and show utmost potential for growth in the foreseeable future. This way, larger companies can gain a foothold of a growing market in your local area, and dominate it well before the trend picks up.
Work with the Best & Brightest
At the end of the day, no matter how outstanding your products and services are, it’s the people behind them that prove most valuable.
More than products and services, a key reason why your business would be a strategic acquisition is the sheer talent and creativity that would make constant innovation possible in the years to come. This is a factor of the skills and ideas that make your business – and are rooted in the people you employ. The more talented people your business employs, the higher its resulting valuation, as human resources are considered a key asset many companies would pay a premium for.