Business acquisitions are a standard strategy for growing a business without spending years on brand-building. Even though the number of global acquisitions has decreased by 8% from Q2 2022 to Q2 2023, tremendous opportunities exist for companies looking to grow through acquisition.
What impact can an acquisition have on a company? This guide discusses the different impacts a business acquisition can have on your firm’s trajectory.
Are acquisitions good for business?
Acquisitions can happen for many reasons, including entering new markets, staving off competition and accessing new products/services without building them from scratch.
One successful UK business acquisition was ARM Holdings in 2026. The SoftBank Group Corp, a Japanese multinational conglomerate, purchased ARM Holdings for £24 billion. ARM’s chip design expertise acted as a boon to SoftBank, which specialises in creating a future built by technology.
Today, SoftBank and its subsidiary ARM Holdings are critical in developing leading technologies like 5G, the Internet of Things (IoT) and artificial intelligence.
This acquisition is only one example of a company that purchased another for its expertise within a specialist field. ARM Holdings received a massive payout while SoftBank gained access to new capabilities.
At first glance, this is how acquisitions should go, but not every acquisition is so successful.
When acquisitions go wrong…
Proper due diligence and an ironclad acquisition growth strategy will increase your chances of growing your company by acquiring another, but poor planning and bad luck can also result in acquisitions becoming a liability.
One such example was the unsuccessful business acquisition of Unilever. In 2017, the food and beverage company Kraft Heinz bid USD 143 billion for the British-Dutch consumer goods company. Since Unilever also sold other products like personal care products and cleaning agents, Kraft Heinz stood to gain access to new products and a stronger foothold within the UK market.
Unfortunately, the acquisition attempt faced significant hurdles. Unilever claimed that Kraft Heinz had undervalued their company. Plus, politicians, employees and shareholders opposed the acquisition for reasons like:
- Eroded corporate culture
- Job losses
- Impact on the broader British economy
Many of these issues could have been averted with better communication and research. The acquisition attempt was abandoned, and Kraft Heinz spent millions on an acquisition that ultimately went nowhere.
Why do companies acquire other businesses?
Companies acquire other businesses for any number of reasons. Here’s a short rundown of the primary reasons why companies opt to grow through acquisition:
Product/Service Diversification – Acquiring a company can help you to spread risk through diversification. You can access new product/service lines and increase the value you can provide to your market audience.
Increase Market Share – Acquisition can enable companies to grow their footprints within their respective markets quickly.
Break New Markets – Companies can break into new geographic markets by buying an established player.
Access New Assets – Acquisitions also bring new assets, such as factories, warehouses, offices, technology, intellectual property and skilled employees.
Reduce Overheads – Buying another organisation can also reduce their overheads through economies of scale, improving cash flow and margins.
Gain a Competitive Advantage – You can also gain a competitive advantage by improving your financial strength, reducing competitive threats and acquiring patented technologies and copyrighted material.
Since there are so many reasons why companies acquire other businesses, it’s vital to have a detailed strategy and a clear pathway to achieving your firm’s long-term vision.
How do acquisitions affect businesses?
Acquisitions can impact businesses in any number of ways. Currently, the UK is experiencing a boom in domestic acquisitions. In 2022, 948 domestic acquisitions occurred in the UK, the third-highest year since 2000.
Knowing the effects of acquisitions on businesses – positive and negative – can help you evaluate future acquisitions and boost your odds of success.
So, how can acquisitions influence your business’s future?
Expansion and growth
Acquisitions offer a direct line to growth. Whether you want to expand into a new geographic market, tighten your grip in the UK or explore new product lines, expansion is a realistic expectation for a new acquisition.
You can access an established customer base, finance and human resources to carry out your growth plans by acquiring another company.
More synergy
Synergies (and cost savings) can also result from a new acquisition. All acquisitions have the potential to create synergies by combining capabilities, knowledge and finance into one operation.
Companies can improve operational efficiencies and exploit economies of scale through shared resources.
Increased market footprint
One of the most common reasons acquisitions are explored – and why so many acquisitions fail – is the impact on your market footprint.
While acquiring a competing company can boost your market footprint, you must beware of inadvertently creating a monopoly.
For example, the UK Competition and Markets Authority (CMA) rejected the merger between supermarkets Asda and Sainsbury’s because of fears that it would reduce competition and lead to higher consumer prices.
As you can see, misjudging the impact of an acquisition (or merger) and failing to consider the legal side can result in acquisitions being struck down.
Risk mitigation
Diversification isn’t just designed as an offensive measure to accelerate growth. It can also be defensive.
Acquiring a company in a similar or different industry to grow your product range can spread your risk through exposure to other audiences. This can make companies more resilient against economic downturns.
Integration trouble
Integration is a massive part of any acquisition. Poor integration planning can rapidly erode the perceived value of any acquisition. If integration challenges become a problem, the impact of an acquisition on a firm can turn negative.
Financial implications
Acquisitions are often spoken of through the lens of growth, but acquisitions require significant financial outlays.
Paying too much for a company, assuming too much debt, or not doing your due diligence can lead to the financial outlay weighing heavy on a new entity.
Reputational impact
Acquisitions are known for affecting a company’s reputation in the eyes of the public. A well-received acquisition can improve your reputation and bolster your brand’s overall value.
However, if an acquisition leads to layoffs or customer dissatisfaction, it could tarnish your company’s image and drive customers away.
Are acquisitions an important part of a business’s growth strategy?
Acquisitions have long been an integral part of growth strategies. While startups may enjoy a positive trajectory, established companies find it harder to grow organically.
The way around this is to acquire another company using your cash reserves or external financing.
Overseeing a successful business acquisition can result in various advantages for growth, including:
Quick Market Entry – Instead of starting from square one, companies can enter new markets by acquiring a company, its customers and the talent within the brand.
Access to Exclusive Technology – Patented technology that’s better than yours poses a threat and an opportunity. Acquiring the company can stop your competitors from accessing that technology and prevent a smaller company from one day posing a threat. It can also enable you to expand your operations.
Expand Your Capabilities – Companies can be acquired to change the answer to the question, “What can we do?” New technologies, facilities and staff can allow your firm to do more than it could before.
Gain More Customers – Attracting customers to your brand is the greatest challenge in the business world, but through acquisition, you can instantly gain thousands of already loyal customers, leading to increased revenue-generating opportunities.
Acquire a Competitive Edge – Acquiring a business with desirable intellectual property or talented workers can give you a competitive edge. Crucially, it means the competition can’t gain access to these assets.
Temper Reliance – Relying on a single product, market or industry can put you at the mercy of macroeconomic trends, but by acquiring a company in another field, you can get out from under industry-specific downturns.
As you can see, acquisitions can add tremendous value to a business entity. They can be the key to supercharged growth but require careful thought because the wrong acquisition can have the opposite effect.
What are the potential impacts of a business acquisition on growth?
Business acquisitions can impact your growth in three ways: growth, no movement or a decrease in growth. Anything but growth following an acquisition would be considered a failure and a liability.
These are your three options following an acquisition, and your post-acquisition strategy should anticipate these potential outcomes. Obviously, you want your business acquisition to be successful, so what challenges must you contend with?
1. Cultural integration
2. Employee retention
3. Employee morale
4. Integration
5. Customer retention
6. Stakeholder communication
7. Legal compliance
8. Financial
9. Integration planning
10. Managing expectations
These ten challenges represent the most significant problems you’ll encounter while acquiring a company, integrating it into your setup and positioning it for improved growth. It requires strong leadership, planning and management, from identifying target companies to maximising the potential of your newly acquired entity.
At Hilton Smythe, we understand how tough it can be to embark upon a business acquisition growth strategy. If you’re struggling with the ins and outs of business acquisition, contact the team today.
