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Posted 03.03.2010

Beef up your biz instantly: acquire a competitor

It might be easier than you think

By Larry Turner

We all know that increased sales volume in our businesses can be the cure to a number of problems. What is not readily known is there are opportunities to increase sales through acquisition during these difficult times. Sure, many banks have higher standards for lending, but there are ways to get a deal done.

I know a number of companies that have increased their business by integrating volume and operations of other organizations. Here are two areas that I have seen work over the past 18 months:

Failing competitor

Many companies are not going to make it through to see the end of this recession. Those that do not make it leave their customers and sales people looking for a home. You can proactively approach your competitors with a solution to taking care of their customers and employees, while allowing the owner to keep assets for liquidation.

The approach could be a letter, email or a face to face discussion where you offer to transition their clients to your business, allow the sales people to continue closing business on a straight commission basis, and also allow the other business owner a commission on new business that they may close due to relationships already in place. You never know how your competitors are doing and opening the discussion for them to gracefully transition out of their business may be a good solution for some.

This approach will not be a solution for many, but it never hurts to ask. Make sure your operation can absorb the extra volume and you have sufficient buffer to support the working capital requirements of a quick increase in volume.

Purchase a competitor

Purchasing a competitor’s assets is a great way to increase volume. This option is only available to those companies that are not overburdened by debt, have been able to sustain positive cash flow and the owners have not over leveraged themselves personally.

Purchasing a competitor allows you to leverage your current infrastructure, increase your volume of product that you can support in your business, and leverage your knowledge in the industry. There is bank debt available to support the right deal and the loan officers like deals where your current company is in good shape, you have industry and business specific knowledge, and your personal finances are clean.

Take advantage of SBA programs to acquire smaller firms as an add-on to your current business. I recently had a conversation with an SBA loan specialist in the Denver area and he informed me that they are funding SBA deals if the situation is right. There are a few industries they are staying away from, but in general they are looking for opportunities to lend.

It doesn’t cost you anything to ask your competitors if they are interested in transitioning out of their business. If you can get increased volume without having to purchase their business or assets it allows you to leverage the additional volume in your operation. The worst thing that can happen is your competitor tells you “no”.

The next best thing that can happen is you start discussions on acquiring certain assets of their business. If you have been able to hold on to some positive cash flow, and can show a solid integrated business there is a potential of getting financing to support an acquisition. You will also find that there are a number of banks in the area that are lending, but with different criteria. Check out a number of different lenders to get a feel if your opportunity is one that fits their business model.

Larry Turner is CEO of Roundhouse Advisors, Inc. and has over 25 years experience growing, starting up, repositioning, and revitalizing organizations. Roundhouse Advisors is a consulting practice focused on helping businesses increase enterprise value by managing pain, growth and owner exits. Larry is a consultant, public speaker, and the author of “Owner Exit Planning: Leave On Your Own Terms." For additional information visit www.RoundhouseAdvisors.com

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