How to Align Acquisition Financing with Long-Term Business Goals

Acquisition Financing is a versatile tool for businesses seeking long term growth. It can be used in a principal way or in a secondary way depending upon the growth profile of the company. Often there is great value to the business to have acquisition financing in its back pocket to use opportunistically.  Industry conditions often dictate the most sensible way for a business to grow. During nascent stages of growth, there are typically large levels of demand leading to the need for capacity scaling.

In this stage, businesses are primarily occupied with internal or organic means of producing more products to satisfy demand. While the organic push is dominant, acquisition financing can be tapped to purchase a complementary company to upsize the plant and resource base. This gives a fast-growing company a jumpstart to grow faster than they otherwise could. Alternatively, during slower growth phases, businesses pursue market share gains and regional expansion for long term growth. Most mature companies have strong cash flow and solid management teams allowing them to engage in acquisitions as a principal growth strategy.

Acquisition financing during the mature phase can help increase growth back up to double digit annual growth rates. The best way to align acquisition financing with long term goals is to firmly assess where you are in the corporate growth spectrum. If you are building out your presence and scrambling to satisfy demand, acquisition financing is likely a secondary strategy in your growth toolkit. If your business has matured and you are looking out for the next 3 years and see single digit growth, then acquisition financing should be prioritized.

Acquisition financing is highly moldable and flexible to fit into any specific long term growth plan be it an organic acceleration phase or mature market share consolidation phase. At its most basic level, acquisition financing is external capital that enables a major growth step through purchase of a complementary business. There are innumerable benefits to acquisitions and also an infinite number of ways to apply acquisition financing. The smartest companies focus on understanding all of the various structural forms and applications of acquisition financing to help drive high-performance long-term growth.