While acquisitions do not have any particular formula to guarantee success, there is no doubt that some are more successful than others. Each specific deal has its own strategy, rationale and principles.
It can be notoriously difficult to empirically analyze acquisition strategies. They can dramatically vary in size and type. There is also no objective methodology of classifying strategy. That said, there are some types of acquisitions that tend to be more successful than others. Here, we take a look at six of the most successful types of acquisitions.
1. Improving performance
One of the most common acquisition strategies is improving the target company’s performance. In this scenario, you purchase a company and proceed to reduce costs and increase revenue.
2. Removing excess
Reducing excess capacity in an industry through consolidation has been shown to be another successful strategy.
3. Creating market access
Sometimes, a small company has difficulty accessing its market potential. A larger company could acquire it and then use its own resources to increase the smaller company’s access to the market.
4. Acquiring skills or technologies
Buying a company can also be a way to acquire its skills or technology quickly and more cheaply than you could through your own company. This strategy is particularly common in the tech industry.
5. Using a business’s industry-specific scalability
Economies of scale can create value in acquisitions if there is a large unit of incremental capacity or if a big company acquires a subscale one. In order to be significant enough to justify an acquisition, however, the economies of scale must be unique.
6. Picking winners early
Finally, acquiring a business, industry, or product line early in its development and nurturing it to success can be a winning strategy. You will need to make early investments, take chances and bet that some investments will fail, and remain patient and diligent as your acquisitions grow.