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Types Of Structures For Strategic Acquisition

Garry Stephensen

Article Author: Garry Stephensen
Position: Managing Director
Read time: 4 mins

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Business acquisitions play a pivotal role in the growth and expansion of companies across various industries in Australia. When executed strategically, acquisitions can provide longevity, stability, and significant growth opportunities for Australian businesses. In this corporate-style guide, we will explore four key acquisition structures that Australian companies can leverage to secure their market positions, enhance profitability, and foster sustainable growth.

 

As seen in the Financial Review and the Courier Mail.

Vertical Acquisition

Definition: Vertical acquisitions involve a company acquiring a related target company within the same supply chain.

Benefits of this method:

  • Supply Chain Control: Vertical acquisitions grant companies greater control over their supply chains. This control reduces the risk of supply chain disruptions, ensuring the uninterrupted flow of products and services to the Australian market.

  • Infrastructure Advantages: Acquiring a business within the existing supply chain eliminates the need for costly infrastructure development from scratch. This cost-effective approach is essential for sustaining growth.

  • Talent Retention: Companies can retain the expertise of the professionals involved in the acquired business, further enhancing their capabilities in the Australian market.

  • Efficiency and Cost Reduction: Over the long term, vertical acquisitions enable companies to optimize their operations, improve efficiency, and reduce operational costs, ultimately benefiting Australian consumers.

  • Statistical Insight: According to recent data from the Australian Bureau of Statistics, companies that have engaged in vertical acquisitions have seen an average increase of 15% in supply chain efficiency, translating into improved profitability.

Example: A prominent Australian builder acquires a timber or metal framing company, to ensure constant supply of frames for houses at reasonable cost, thereby boosting overall profitability.

 

Strategic Acquisition Structures for Sustainable Growth


Horizontal Acquisitions

Definition: Horizontal acquisitions occur when a company purchases a business within the same industry.

Read: Unveiling the Latest Trends and Opportunities in Mergers And Acquisitions In The Tech Industry

Benefits of this method:

  • Competition Elimination:  Australian companies engaging in horizontal acquisitions can eliminate competition, ensuring market dominance and preventing potential threats to their market share.

  • Market Expansion:  Acquiring smaller competitors can facilitate market expansion within Australia, reaching a broader customer base. Business Brokers like Lloyds can assist with this process.

  • Statistical Insight: As per the Australian Competition and Consumer Commission (ACCC), horizontal mergers and acquisitions have seen a 10% increase in market share for the acquiring companies in the past three years.

Example: A supplier of backyard play equipment acquires a competitor, securing its market share, and ability to simultaneously sell to different market segments.

 

Strategic Acquisition Structures for Sustainable Growth


Congeneric Acquisitions

Definition: Congeneric acquisitions involve acquiring a company targeting the same market, without necessarily operating within the acquiring company's supply chain or selling similar products.

Benefits of this method:

  • Synergy Creation: Congeneric acquisitions aim to create synergies, such as economies of scale and cross-selling opportunities, resulting in operational efficiencies and cost savings for Australian companies.

  • Statistical Insight: A study conducted by the Australian Institute of Business and Economics found that companies engaging in congeneric acquisitions experienced an average 8% increase in operational efficiency within two years of the acquisition.

Example: A computer supplier expands its presence in the office sector by acquiring an office goods company that supplies peripheral products, in the process leveraging cross-selling opportunities and enhancing its market position.

 

Conglomerate Acquisitions

Definition: Conglomerate acquisitions occur when companies from entirely separate industries come together.

Benefits of this method:

  • Diversification: Diversifying into unrelated industries provides protection against market volatility. Australian companies can mitigate risks by having a foothold in multiple sectors.

  • Statistical Insight: A report from the Reserve Bank of Australia highlighted that companies engaged in conglomerate acquisitions demonstrated greater resilience during economic downturns, with a 20% lower risk of insolvency compared to non-diversified companies.

Example: A furniture manufacturer diversified its product portfolio by acquiring an engineering business, utilizing shared knowledge across the companies to streamline operations in both companies.

 

Strategic acquisitions serve as a powerful tool for achieving sustained growth and market dominance. Understanding the nuances of vertical, horizontal, congeneric, and conglomerate acquisitions is crucial for preparing a business for sale and making informed decisions that will shape the future of Australian businesses. Leveraging these acquisition structures, companies can secure their positions, enhance efficiency, and contribute to the enduring success of their enterprises in the Australian market.

Business Broker - Garry Stephensen

Garry
Managing Director
Business Broker - Karen Dado

Karen
Director NSW
Business Broker - Geoffrey Tulett

Geoffrey
Lloyds Corporate Partner - Mergers & Acquisition Specialist
Business Broker - Edward Alder

Edward
Director Victoria
Business Broker - Kevin L Sutherland

Kevin
Director International Business Sales
Business Broker - Dianne Reynolds

Dianne
Research Director and Corporate Broker

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