Increasing market share is a fundamental driver for any successful business. You can eliminate the competition in all manner of different ways, allowing you to move in to fill the void; but acquiring a competitor can often be more efficient than a battle for your shared customer base them.

The current economic climate might yield opportunities to snap up floundering rivals. Interest rates and costs are both up putting pressure on everyone. Buying a fundamentally sound business in the same market, but which has some short-term financial pressures, can lead to a number of benefits.

You can grow your business quickly. A strategic acquisition can also be a great way to improve existing strategies and practices, by learning how a competitor operates. It can also provide ready-made access to new geographies in much less time that it would take to build your own bridgehead in a new market.

Considerations prior to buying:

• What draws you to the competitor, and what are their strengths?
• Ideally their strengths will align with your weaknesses.
• How will you integrate the target business with your existing one?
• This is really important. Completing the deal is only the end of the beginning. The real work starts afterwards.
• Who are your competitor’s customers, and do you want them?
• Where is your competitor based? Would acquiring them allow entry by your business into a new location/geography?
• Do you want to acquire the shares in the company, or ‘cherry-pick’ the assets you wish to purchase?
• A target with lots of corporate ‘baggage’ might favour an asset sale, but watch out for employment liabilities.
• Will the competition legislation have an effect?

Alternatives?

An alternative to buying your competitors, may be collaboration without acquisition. Since competitors operate within the same markets and use similar practices and resources, it may be more efficient to partner up, although there may still be competition issues. Furthermore, if your competitors are facing similar problems within your industry, it may be more effective to collaborate to solve those problems by pooling resources, instead of expending time, money and resources to develop products or to solve problems separately or independently.

‘Coopetition’, a term coined as a hybrid between cooperation and competition, is a strategy whereby companies work together to gain a competitive advantage within their market, and can be achieved by way of a joint venture.

Coopetition can be a low-cost route for new competitors to gain market access and other benefits. By cooperating with an existing competitor, and gaining access to those services, partnerships can provide a competitive advantage within the market, and avoid the additional expenditures of such expansion.

Although ‘coopetition’ can be a beneficial strategy, it is important to understand and clearly document the objectives and strategies of the partners. We have listed some advantages and disadvantages below.

Advantages

• Cost-efficient
• Pooling of resources, and transfer of ideas and expertise
• Gaining a competitive position in the market

Disadvantages

• Potential competition between the entities in other areas of the business
• If the deal falls through, there is a risk that information has already been exchanged
• Issues with competition laws

Whether an acquisition or merger is the most appropriate strategy for a company depends on the goals, resources and exit strategies of the business. MBM frequently advise on mergers and acquisitions, from the preliminary stages (including advising on term sheets for buyers and sellers) throughout the transactions to completion.