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13/01/2023

Inorganic growth: the right time to start

Fusion acquisition

It is a question that many business leaders ask themselves: when is the right time to initiate an inorganic growth operation? There are many answers to this question. While in reality there is no such thing as an “ideal time”, there are many factors to consider before embarking on an acquisition. Experts from AURIS Finance, a merger and acquisition consulting firm, give you their analysis.

The ideal time for an acquisition is difficult to determine in advance. The maturity of the company, its growth ambitions, the state of the market and the economic situation are all elements that must be taken into account. In all cases, the buyer takes a risk. A risk that can nevertheless prove to be particularly profitable.

Organic or inorganic growth?

Although organic and inorganic growth are traditionally pitted against each other, in reality the two strategies are very often closely linked. An acquisition is usually made by a company in good shape, with a sustainable business and real growth potential. Moreover, inorganic growth is not the weak link in the innovation chain. For example, when acquiring a company in distress, it is advisable to implement particularly innovative strategies to turn the business around and lead the teams into a new era. Similarly, the integration of a new company into an existing group requires ingenuity to create synergies between the different entities.

Acquiring a competing innovation

The various factors driving the acquisition of a target depend on the strategy of the acquiring company. In the case of a company that is dominant in a given market, such as in Big Tech (GAFAM), the acquisition of innovative technologies will enable it to maintain a dominant position in a market. This is how Google acquired the video platform YouTube in 2006. The digital giants are also known to make “killer acquisitions” to eliminate a technology that could eventually threaten their own. These deals are now being scrutinised by competition authorities. In November 2021, the UK’s Competition Markets Authority (CMA) ordered Facebook to sell Giphy, a company specialising in the production of gifs, which the American company acquired in May 2020 for €400 million.

An early-stage acquisition

Beyond these specific cases among the digital giants, most inorganic growth operations are designed to rapidly increase a company’s market share. Although these operations usually take place after several years of activity, some offensive companies choose to acquire a target company from the outset. It is a fact that the cost of creatio ex-nihilo growth remains higher than the cost of acquiring a competing target. In this context, the takeover of a company – even a distressed one – that has a solid technology, customer base, brand and turnover is a real springboard for launching a business.

AURIS Finance experts at your side

The experts are clear: it is never the right time to embark on an inorganic growth operation. There are many obstacles and real risks. These risks increase tenfold when the geopolitical environment is uncertain (return of inflation, tensions on energy and raw material prices, etc.). Nevertheless, knowing how to take risks in uncertain times can be a particularly profitable strategy. Especially when you are just starting out. Whatever your project, our sector specialists are here to help.

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#AURIS Finance