Using M&A to diversify your business

With the UK on the brink of recession, many SME owners will be understandably worried about what the future may bring. The temptation at times like these may be to pause any ambitious growth plans and instead focus on just making it through to the other side of the downturn.

However, the best way to survive a crisis is in fact to focus on ways of attaining growth, which will not only improve a business’ chances of outperforming competitors during a recession, but also set them up with a solid platform for growth in the wake of the downturn.

One of the most reliable ways to achieve growth during a recession is through M&A activity, which can enable a business to adapt to the changing marketplace, build scale and geographic presence and grow their customer base.

Of course, there are barriers to growing through M&A, with cash understandably tight in the current climate. However, while financing may be challenging to secure, there are sources of funds out there, such as banks and private equity firms, who will consider investing in businesses with solid acquisition plans.

Here are some of the ways that diversifying through acquisitions can transform your business during a crisis.

Tap into a changing marketplace
Crises such as recessions often fundamentally alter the way customers behave, even once the disruption has passed. For example, the COVID-19 pandemic has driven a sustained shift from brick and mortar retail to e-commerce, something that has continued even following the peak of the pandemic.

Identifying how a crisis is changing the marketplace in your industry will be crucial to spotting how you can capitalise on and tap into these trends and, subsequently, enable you to seek out the best acquisition opportunities to help achieve this.

While it may appear cheaper in the short term to change your basic business model to adjust to such changes, acquiring new services, products and offerings through acquisitions is a far quicker way to reshape a business in reaction to market changes and one that may prove far more cost-effective and successful in the long run.

Rapid growth
In comparison to organic growth opportunities, acquisitions can enable your business to attain growth considerably quicker, which could prove vital during an economic downturn. Especially if a company is looking to diversify, organically building the expertise and services required to do so will be highly time consuming and will be less likely to succeed than acquiring a business already operating in that marketplace.

The key will be to identify the area or areas your business is looking to move into, develop a profile of target businesses and establish solid due diligence processes (especially vital during a recession) before moving on potential acquisitions. Once these steps are in place, however, your business will be well poised to achieve rapid growth through acquisitions.

New synergies
When moving outside of the core marketplace your business operates in, even if you’re acquiring a business in an extremely similar or adjacent sector, there will be obvious upsides, such as a new customer base, expanded geographic reach and greater scale, among other things.

However, there may also be unexpected benefits that could prove just as valuable and improve your core business. New acquisitions can mean tapping into new ways of working, greater knowledge and expertise, new resources and new skills. These are all things that could boost profitability, resilience and productivity across your entire business.