By Robert W. Bradford, President & CEO
This post is part of a series taken from Robert Bradford’s article Strategic Evaluation of Acquisition Targets published in Compass Points September 2008. In part one we introduced the series and discussed Market Impact. In this part we will discuss Technology impact, Human resource impact, Distribution impact, and Supplier market impact.
Sometimes you may consider an acquisition because the target company owns a technology that will be strategically useful to your company. This is usually strategically valuable when a technology can differentiate your company by helping you meet a specific customer need or preference better than your competition.
Human resource impact
In some situations, the human resources of a target company will create value for the acquiring company. While just having warm bodies will only create value in a time of labor shortage (which we saw in technology companies during the dot com boom), it’s not uncommon to see specific skilled employees creating a considerable part of the perceived value of the target. For example, insurance agencies may find other agencies desirable because they have a number of skilled and experienced producers. Likewise, in technology, you may want to acquire a company to get a team that is especially skilled in a certain type of software (such as mobile device social media) because the technological competency of the team will help you meet customer needs better — or even create a wildly differentiated product.
An acquisition target may give you enhanced ability to penetrate a new distribution channel — or give you the concentrated power to dictate terms to an existing channel. For example, Acco Corporation owns several well-known office product brands, which gives the company increased leverage with powerful office superstore chains.
Supplier market impact
Leverage is not restricted to customers and distribution channels — if you control most of a market, you may also have greater bargaining power with suppliers. This may allow you to dictate product features, terms or even pricing with your supplier base, because you have power over their access to your market. This kind of power gives companies like Walmart the ability to have much higher profitability than competitors, because selling to the largest customer can be the key element in maintaining dominant market share.
As you can see, there are many ways an acquired company can add real value to your bottom line beyond simply adding sales volume or cash flow.
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