Two types of acquisitions are common. One is a financial acquisition where a firm or Private Equity group may acquire an undervalued opportunity, then add value through increased efficiencies, spin-offs or some other means to sell later at a profit. Another common acquisition is strategic.
Strategic acquisitions involve combining two or more manufacturers that have off-setting Strengths, Weaknesses, Opportunities and Threats. The sum value of both manufacturers is greater than the values of each sold separately. Delta-Driver LLC has offered services for two firms to come together by assessing both, then quantifying the combined value.
First, a thorough SWOT analysis of the target company will reveal an appropriate potential buyer. Wikipedia defines these terms as follows:
- Strengths: characteristics of the business or project that give it an advantage over others
- Weaknesses: characteristics of the business that place the business or project at a disadvantage relative to others
- Opportunities: elements in the environment that the business or project could exploit to its advantage
- Threats: elements in the environment that could cause trouble for the business or project
Strengths and weaknesses are internal to the organization(s). Often this is where a financial acquisition may gain value. A financial acquisition will focus on these opportunities for value creation.
Opportunities and threats are external to the organization(s). A strategic acquisition may focus more on these externalities than on the internal ones. Both internal and external value creation often define the total value in a strategic acquisition.
Common external opportunities and threats include:
- a common material profile for finished goods
- capacity one firm has that another one does not, and both firms need
- capturing a broader scope of products from a common customer
- limiting the supply outlets of other competitors
- vertical integration in the supply chain
- increased or combined distribution channels
- diversification of customer base with less reliance on a few
Second, a corresponding SWOT analysis of a prospective buyer will quantitatively reveal the value of the proposed acquisition. Even if it is shown that two firms will not yield a net gain together, both of the SWOT analysis will point to parameters for the buyer or seller to consider as the search may continue.
Third, the ideal buyer will have plenty of cash for the sale and an ideal seller will show its EBITDA is steady and growing. Even though, Delta-Driver LLC is not normally in the acquisition business, it occasionally encounters an eligible buyer ready to buy at the right opportunity. Currently a few clients are in that category.