What’s My Motivation?
The fifth “W” in the famous “Five Ws” of journalism is “Why,” but in M&A planning, it’s the question to place at the head of the list. An acquisition begins with a wish to acquire something, and behind that wish there is—or there should be—a cogent and compelling motive. This is what makes understanding your motivation the bedrock of your strategy as a buyer. In this post and others to follow, we’ll examine the aspects of “Why” from both the pro and the con sides.
As you weigh your reasons, bear in mind that for many companies, acquiring and being acquired will be closely linked life-cycle events. Firms that grow their revenue through acquisition today will be all the more attractive when they decide that they are ready to become candidates for acquisition themselves. Whether the goal is to achieve a higher multiple of EBITDA or simply to build enough value to satisfy the post-sale requirements of various family members, partners, and shareholders, growth by acquisition is a powerful forward-looking motivator for buyers who may eventually become sellers.
What determines your strategy for an acquisition? There are as many situation-specific answers as there are printing companies, but our buying clients at New Direction Partners usually have one or more of the following objectives in mind. Some are more relevant to tuck-ins (where only customer accounts are acquired) than to sales as going concerns, and vice versa. But, they’re all good examples of good reasons to proceed.
• Grow revenue. This is desirable for its own sake now and for the sake of your wish to be acquired later on. In general, larger companies will enjoy higher multiples of EBITDA as acquisition targets than smaller companies, mostly because of the economies of scale for potential buyers. Remember, it costs a buyer as much time and effort to acquire a $3 million firm as it does to acquire a $10 million or a $15 million business.