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Mergers and acquisitions serve as powerful tools for companies looking to expand their market reach or customer base. These strategies enable organizations to swiftly penetrate new markets or attract more customers, benefiting from synergies and economies of scale. When a company acquires another that already possesses a solid customer base, recognized brand, and established distribution channels, it can quickly make its mark in new areas. This method is much faster than building from scratch or expanding independently. It helps conserve time and resources, promotes growth, increases market share, and delivers value to shareholders.
Common M&A Strategy for Growing Market Share
In our experience with clients, we have identified several common strategies used by strategic acquirers to grow their customer base. These include:
- Horizontal Integration: Acquiring a competitor and merging their operations with yours. This can be through:
- Merger of Equals: Joining forces with a competitor of similar size to increase capabilities and market presence. In the payment processing sector, for example, there's a company who wishes to merge with a similar or larger company to increase their processing volume. This larger volume facilitates greater economies of scale, allowing the merged entity to achieve instant gains in market access and value.
- Roll-up Strategy: Purchasing multiple smaller companies within the same industry. This is prevalent in sectors like staffing, where a company may acquire various smaller staffing agencies across different regions, or in industries like HVAC and insurance brokerage.
- Acquiring audience: Targeting another company that reaches the same audience but operates in a different sector, like HubSpot’s acquisition of The Hustle, which brought in a large subscriber base composed of entrepreneurs, start ups and scaling companies.
- Cross-border Acquisition: Expanding into new markets by acquiring companies in different countries. For instance, a European publishing company looking to acquire a company in the US to broaden its market presence and reach new audiences.
Steps for defining your M&A target profile
As companies explore mergers and acquisitions to expand their customer base and market presence, a clear and strategic approach is crucial. We outlined the steps and some example questions to consider when forming your ideal M&A target profile for growing market share below:
Step 1: Assessing Your Current Customers:
- What are the segments of your current customers?
- What is the revenue and bottom line impact of each customer segment?
- What are the key weaknesses or gaps in your current market coverage?
- Which customer segments does your business serve better than its competitors, and in which segments does it lag behind?
Step 2: Identifying Market Share Goals
- What are your company's market share goals for the short, medium, and long term to improve your competitive position?
- In which existing customer segment do you aim to increase your customer base?
- Which new customer segment do you plan to target?
- How do you plan to acquire your desired customer base through organic growth strategies, and how do these strategies compare in terms of time and cost to inorganic strategies?
Step 3: Defining Ideal Acquisition Profiles
- What types of businesses are currently serving the customer base you want to acquire?
- For each identified business type, what would post-merger integration entail in terms of time and cost for your business to fully absorb its customer base?
- What are your financial, technical, and operational limitations in acquiring and integrating a potential M&A target?
- What are the potential risks associated with acquiring certain types of businesses, and how can these risks be mitigated?
- How will you measure the success of market share growth-focused acquisitions, and what are the expected timelines for realizing the benefits of such acquisitions?
Answering these questions will prepare you to effectively move forward with the search and screen process. Finding the right company that fits well with your current business and helps achieve your customer acquisition goals becomes much clearer.
The journey through mergers and acquisitions often brings unexpected challenges that demand strategic flexibility. As the market evolves, you might find that ideal targets are sometimes unavailable or uninterested in a sale. In these instances, adapting your strategy is key. Service providers like IntVentures play a vital role during such times. We provide real-time feedback and forge connections with companies that fit your ideal acquisition profile. Should your initial plans falter, we assist in honing your criteria and exploring new avenues. This comprehensive approach ensures your M&A strategies are effectively aligned with your goals, leading to successful identification and acquisition of the right targets.
