A company scaling in response to customer demand and seeking to broaden its product or service offerings must answer a question that will likely have a lasting impact on its team, customers, operations and financials. Do you build, partner or buy?

H2: Build

By building a solution from the ground up, companies can fully understand the processes, IP and infrastructure. It’s typically the most cost-effective way to account for gross dollars invested. But what’s often left out of the conversation is time for research and development, compliance, legal and hiring the right individuals to bring the vision to life. Plus, there are unknown costs such as entry-level and marketing research mistakes and capital investment until the business is profitable. On a net basis, building new is the most expensive direction.

H2: Partner

Alternatively, there are partnerships. Partnerships leverage a third-party provider’s knowledge base and infrastructure. Then your company leans on that partner to do what they do best. Drawbacks here often include reduced margins, mismatched expectations, and an inability to control the quality of the customer experience.

 H2: Buy

Acquisition can be a powerful tool for accessing adjacent markets, new technologies, or complementary offerings. At BHG Financial, overseeing our venture capital and controlling investment strategies is my honor. I spend most of my time understanding our long-term vision and evaluating viable companies that stand to augment internal efforts to achieve the long-term vision in a more time, cost and complexity-efficient manner. I will focus on this aspect and it's what I recommend you consider before entering a commitment to buy.

“Acquiring another company can benefit all stakeholders immensely and deliver enterprise value and it requires careful planning, diligent execution and strategic foresight. By evaluating key considerations, businesses can increase their chances of successful and sustainable growth in the competitive business landscape”

H2: Strategic Alignment

Before beginning the acquisition process, construct a framework detailing why and how to evaluate potential opportunities. Understand the sensitive elements, such as customer overlap or financial return hurdles. Conversely, know the non-starters. Due diligence can be an emotional process, so having a thoughtful evaluation matrix in advance can remove any biases that arise. Compatibility around customers, positioning and culture is crucial for seamless integration and long-term value creation. Look to see if the two organizations share similar values and work on similar problems for similar customers.

H2: The Market

Assess the company's competitive positioning, market share and growth prospects. Do you have conviction in the growth prospects for that market? Are you sure there will be continued demand for the proposed new product or service? Understanding potential disruptors, technological advancements and emerging trends that could impact the industry landscape in the short, medium and long term is equally helpful. Will this product or service benefit your customers and will they pay for it?

 H2: Financial Viability

Conducting thorough financial due diligence is critical. Maintain an optimistic view of what you can control and focus on the key drivers of the business, not historical habits. Analyze the company's financial health, including revenue trends, profitability, debt levels and cash flow. Assess potential parallels and cost-saving opportunities and gauge where your business can add value. That could be recruiting, funding, domain expertise and infrastructure.

H2: Regulatory and Legal Considerations

Regulatory compliance and legal hurdles can significantly impact an acquisition's success. Engage experts early in the process to mitigate legal risks and ensure compliance. Typically, as a company scales and its impact grows, it will become more heavily regulated.

H2: Integration

The real work begins post-close, often requiring effective communication and change management to integrate the two companies. Develop a comprehensive integration strategy covering organizational structure, IT systems, financial infrastructure, operations and human resources. Have delegated responsibilities and reporting structures. Don't force a business to adhere to your design. Remember your reasons for initiating the acquisition. Trust the people who built and run the company while offering your support to help them thrive.

H2: Cultural Fit

Complementary cultures are extremely important for post-acquisition success. Conflicting cultures can cause employee disengagement, resistance to change and integration failure. Carefully look at cultural similarities and differences. Perhaps your business could adopt something from their culture.

H2: Talent Retention

You'll rely on key employees to help run the business. Understand their personal and professional goals. To maintain continuity, provide them with a clear and achievable development path post-close. Develop retention strategies and incentivize them to stay on board.

H2: Exit Strategy

No one plans to fail, but it's good to anticipate potential ways out if the acquisition does not meet expectations. Acquiring another company can benefit all stakeholders immensely and deliver enterprise value and it requires careful planning, diligent execution and strategic foresight. By evaluating key considerations, businesses can increase their chances of successful and sustainable growth in the competitive business landscape.