jesse | September 10, 2019

Buying a business drives growth, but preparation is key, says new BDC study

Acquiring more than one business increases chances of higher revenue growth by 66%

Key findings:

  • Entrepreneurs who undertake a well-structured acquisition are 94% more likely to become high-growth businesses three years after an acquisition.
  • Entrepreneurs who acquire additional businesses do so to grow, with 41% aiming to increase market share and 24% wanting to add a new business line.
  • Buying a business can drive a company’s growth. Firms that acquired more than one business were 66% more likely to have generated annual revenue growth of 10% or more in the last three years.
  • Acquiring another business is good for revenue growth. Forty-six percent of small and mid-sized enterprises (SMEs) who acquired one or more businesses in the past 10 years said revenue growth was outpacing their industry average, compared to 38% of SMEs without an acquisition.

Entrepreneurs who acquire other businesses do so to grow, according to a new BDC study titled “Buying a Business: A Winning Strategy to Purchase Another Company in Canada”. In fact, firms that acquired more than one business were 66% more likely to have generated annual revenue growth of 10% or more in the last three years.

The study finds that the key to a successful business acquisition is a well-structured process and good planning. Entrepreneurs who undertook a well-structured acquisition were 94% more likely to become high-growth businesses three years after an acquisition than firms that did not follow such a process.

“Acquiring another business is a great way for companies to grow, but good planning is vital to ensure the project is successful; following a well-structured process is a winning strategy,” says Pierre Cléroux, Vice President, Research and Chief Economist at BDC. “Unfortunately, many Canadian businesses are leaving benefits on the table due to poor preparation. They often fail to take important steps, such as appointing a dedicated team to manage the project or preparing a strategic growth plan. Our research clearly shows that business owners can take specific steps to significantly improve their success in an acquisition.”

Entrepreneurs identified securing financing and negotiating price and commercial terms amongst the most challenging aspects of an acquisition. Interestingly, 29% of entrepreneurs found retaining key employees difficult, which is higher than the 18% that mentioned negotiating purchase price was a challenge. The study covers the importance of a post-merger integration plan to overcome the challenges that follow an acquisition, with tips on how to deal with these issues.

The study, conducted for BDC by BPI Research, polled 1,038 entrepreneurs at SMEs involved in a completed or attempted acquisition in the past 10 years.

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