Grow a Company by Combining It with Success
There comes a time in every business venture when the company must grow faster than the market allows.
“While that sounds like a contradiction, it is actually a true reflection of contemporary business activities,” said Ryan Binkley, President of GW Equity, a nationwide merger and acquisition company.
“The truth is,” Binkley explained, “many companies do grow faster than the market allows. So it’s not a contradiction at all. Many companies enjoy tremendous growth by acquiring or merging with other companies.”
Dwight Jacobs, Executive Vice President for Mergers and Acquisitions at GW Equity, said there are two kinds of combinations of companies that take place, whether the actual process is a merger or an acquisition.
Some companies combine because a vertical relationship can be strengthened or established with the deal. Examples are companies that acquire their suppliers or their distributors.
An overnight photo service acquires a messenger service that specializes in timely pickup and delivery. The photo service may be looking to assure its control over costs and priorities or it may be intent on diversifying its profit centers – or both.
Looking to specialize and take advantage of volume discounts, an importer of woven fabrics acquires a large upholstery company.
In one very well-known example, a nationwide 24-hour full-service printing company combined with a worldwide package delivery service.
Other companies combine because a horizontal expansion increases their reach or provides diversity. Horizontal expansion adds new goods or services to their portfolios, for instance, or extends their established operations into new geographical areas.
A tool rental company merges with a temporary employee service to give clients fast response to new work orders.
To reach farther south, a drive-in oil change service in the Upper Midwest merges with a similar company operating in Arkansas, Oklahoma and Texas.
Concerned that seasonal fluctuations in revenue hamper prospects for growth, a multi-state recreational vehicle dealer merges with a large sporting goods retailer.
Another dimension to market-defying growth can involve the methods owners use to effect a deal, Jacobs said. Here, the variables are the arrangements by which equity is exchanged.
“The first word that comes to mind in business acquisition is ‘buyout,’” Jacobs said, “but ownership can be transferred in more subtle ways that are beneficial to both buyer and seller.”
“Whether the acquisition is horizontal or vertical in nature, both parties may agree that a successful owner should retain management responsibility as well as a form of equity in the business for a prescribed period of time. There are obvious advantages.”
Nationwide, mergers and acquisitions had a total value last year of $1.6 trillion. That almost equals to the record set in 2000 and it’s 38% more than the total volume in 2005. Experts believe 2007 will be another banner year for M&A.
“GW Equity closed 2006 and started the new year with numerous valuable transactions for clients,” said the company’s executive vice president, Gene Sartin. “Two very important market factors are influencing this strong trend.
“Interest rates are extremely attractive right now, and lenders are eager to be involved in promising deals. When we look at the history of interest rates, we know that this is a good time to be making deals.
“The second factor powering the M&A activity to record levels is the capital gains tax rate. A lot of sellers recognize that this is a very good time to be locking in the obligations that are part of the cost of doing business successfully.”
Sartin pointed out that there is a lot of hard work required of a business owner who wants to derive maximum value from the sale of the company.
“That is one reason why so many people turn to GW Equity. We have the experience and the track record that convince our clients they need our services. The burden of the hard work is on us. The client will close the deal knowing all the right things have been done by the best professional team in the business.”