Starting a business isn’t easy. And to run and manage it to make it profitable is even more challenging. This makes many entrepreneurs opt for startup acquisitions.
So what exactly is a startup acquisition?
Startup acquisition is the process in which an established and often bigger company acquires a smaller and newer startup company. In doing so, the bigger company takes ownership of the smaller company as part of the transition process.
Now you might be wondering why a bigger and more established company would want to acquire a smaller and newly set up business. The startup wouldn’t even generate good revenue after all right?
Well, in that case, let’s look at some of the reasons why startup acquisitions take place.
Why Startup Acquisitions Take Place
It’s not that startup acquisitions happen for the benefit of one single party. It happens for practical reasons and often mutually benefits both parties.
1. Rapid Growth and Scaling
One of the major reasons why startup acquisitions happen is because it aids rapid growth and acceleration for both companies. Setting up a company from scratch can be taxing. It’s expensive, time-consuming, and of course, needs a lot of hard work.
And even after that, you can’t guarantee how successful your business will be. But when an acquisition happens these problems are solved. The bigger company supports the smaller one strategically to he
2. Eliminate Competition
Sometimes the bigger company wants to acquire a startup just to eliminate competition. Suppose you already have an established business. Now a newer company with the same kind of product and services as yours has come up.
This will automatically increase your competition and divert some of your traffic to the new business. By acquiring this smaller business, you can not only decrease this competition but also attract their website traffic and social media followers to your business.
3. Entry into New Industries
Many companies want to enter a new industry. But with all the existing competition, establishing its foot in the industry from scratch isn’t easy. By acquiring a new company, this process becomes faster and more efficient.
4. Increased Market Share
Another major benefit of acquiring a startup is that it helps the acquiring company have an increased market share by making it a dominant player in the industry. When that happens, you can have enhanced competitive positioning and pricing power.
Now these are a few benefits of acquiring a startup. There are several other benefits too. But we’ll not go into the details of those benefits in this post. Instead, we’ll look at how to prepare for a startup acquisition to make it more efficient.
So let’s get started.
How to Prepare for the Startup Acquisition
Acquiring a startup can be a long and challenging process. It needs solid preparations, and proper planning before you finally make that strategic move.
So if you’re gearing up for an acquisition here’s what you need to do.
1. Continue Working on your Goals
Preparing for an acquisition is often a long and strategic process. You need proper planning for it. And sometimes this planning can divert you from your goals.
So instead of focusing all your energy on the acquisition process, try to maintain your goal. This should be to achieve your targets, increase your sales, and boost your conversions.
Do your research to identify what a good conversion rate can be for your business. Ideally, this rate changes based on your industry. According to reports, a good conversion rate for an average landing page is 2.35%.
You should also consider creating a strong online presence for your business. Leverage social media to increase your reach. This is especially true if you have an eCommerce store. Reports suggest that online stores with a social media presence have an average of 32% more sales than those that don’t.
By focusing on your business development strategies like these alongside your acquisition strategy, you can ensure that the bigger companies are impressed with your offers.
Remember, no acquisitions can happen until you can demonstrate your capabilities and potential for growth.
2. Keep Your Books Clean
The next important point to remember when preparing for an acquisition is to keep your books clean. One thing every businessman will do before acquiring your business is to check if your legal and finance section is clean.
So make sure that everything is in order. Talk to your lawyers and accounts team if needed. Keep all your permits and licenses up-to-date. Pay your taxes on time and ensure that your financial statements don’t have any discrepancies.
3. Work Out Your Valuations
This is one of the most important points to remember. Before discussing any acquisition process, it’s crucial that you properly understand your business value.
Knowing your worth can help you ask for a reasonable price. This will also help potential buyers know that you have done your research well and understand what your business is worth.
Keep your revenue reports and all other financial statements ready to show the healthy state of your business.
4. Identify Buyers and Solicit Offers
You have set up your business with great care. So you won’t just want to sell it off to any random person. That’s where identifying buyers becomes important.
Make a list of criteria you want in your buyers. This might include the industry they are in, their net worth, company culture, their location, etc.
Now look for buyers that fall in this criteria. You can do that by using databases, your network, your investors, or even through social media.
This will help you come up with some good potential buyers for your business. Now go ahead and solicit your offer. But before that don’t forget to screen the company and the individuals you will be dealing with.
You should also consider preparing a strong set of finances and audited books, and work on your pitch that you’ll be presenting to them. It can also be a smart move to have a professional to work on the negotiations.
Conclusion
Acquisitions don’t happen overnight. It’s a process that takes time. So don’t be disheartened if you don’t succeed in the first go. Just be patient and continue working on the process. You'll surely get the results.
What is a Merger?A merger is a business strategy in which two firms combine and operate as if they were one legal company.
The businesses that agree to combine are generally equivalent in terms of size and scope of activity.Why do Mergers Happen?Mergers take place for a variety of reasons.Companies will be able to obtain additional resources and expand their operations as a result of the merger.A company may combine in order to benefit its shareholders.
Following the merger, existing shareholders of the original organisations acquire shares in the new business.Companies may agree to combine in order to access new markets or diversify their product and service offerings, resulting in increased revenue.Mergers may occur when businesses desire to buy assets that would take too long to develop internally.A firm with high taxable revenue may attempt to merge with a company with significant tax loss carry forward to reduce its tax liability.A merger of firms will decrease rivalry between them, lowering the cost of product advertising.
Furthermore, the price decrease will benefit customers and, as a result, sales will grow.Mergers may result in improved financial resource planning and use.Types of Merger1.
Raises prices of products or services2.
Prevents economies of scaleILOGTEK top-notch Virginia’s IT staffing and Employment agency (Staffing M) which is a leading organization that matches employers to employees.
