A Quick Exercise to Help Determine Acquisition Targets
Acquisition can be an important component of a PEO’s growth strategy. There is no one formula, so each PEO must ask itself some questions to determine which acquisitions fit into its growth strategy and business model. These questions will not pinpoint specific PEO acquisition targets but will help you identify the types of companies that will fit your strategy so you can align and narrow your search to find the companies that will be the best for your acquisition strategy and PEO business plan.
First, question 1: To grow your PEO’s market share and increase the bottom line, do you choose organic growth, acquisition, or both? A larger PEO should ultimately find economies of scale, be more profitable, and provide a greater return for investors and shareholders. This model proves to be true. At the end of the day, an acquisition must increase the financial strength of the buyer or it makes no sense.
Now, question 2: Where are we today, where do we want to go tomorrow, and how will we get there? Business Planning 101. Putting a plan and budget in place will answer most of the basic questions about the highest and best acquisition target companies. What are your financial and growth plans, mapped out by year? How does an acquisition help you meet or exceed those goals? Why are you acquiring? Here are just a few possible reasons:
- Expansion of your geographic footprint
- Additional product offerings the core business does not provide
- Elimination of a competitor
- Economies of scale by the addition of lives—lower operating costs
- Addition of management and sales talent
- New technology or technology enhancements
- Additional marketing tools
- Enhanced distribution channel
- Speed of entry into a new market