Growing a business naturally can be a very slow process. You may need new employees and new facilities to scale up from your current scope of operations. For such growth to occur organically, you may need to invest years of effort and planning. Even successful businesses may experience growing pains when they try to expand rapidly.
Combining your operations with those of an existing company in the same industry or an adjacent one can be an excellent way to grow your business rapidly without taking on financing or any of the risks that might encourage you to pursue strictly internal development. If there is a business that you believe would complement your operations, should you propose a merger or an acquisition?
When an acquisition is better
For some companies, the goal is to bring in new talent, secure new facilities or gain access to certain trade secrets. Acquiring those resources by purchasing another business will give you the simplest path to success.
An acquisition means that you won’t necessarily have to integrate the management or owners from the other company into your business operations unless you choose to do so. You gain all the resources without the complications of a secondary management team or an executive with completely different values from your own.
The drawbacks of an acquisition include a greater likelihood of numerous workers from the other company leaving early in the transition process. Additionally, it may be harder than your company realizes to integrate new facilities and workers. Companies can and sometimes do overextend themselves financially during an acquisition.
When a merger might be better
You want to start creating component pieces for your main product in-house. Merging with another business that creates those supplies can be an ideal solution for bringing that production in-house. While there might at first be a clash of cultures and some hiccups in the transition, a merger can be a great option when you want the other company to effectively continue operating as is with its existing teams and management remaining in place.
Both mergers and acquisitions have unique challenges that will affect how your business conducts its operations and also its finances. Evaluating your situation to determine what you want from your upcoming business transaction can help you propose the best path forward for your company and the business you hope to merge with or acquire.