With the fast pace of technology and business model innovation, companies are increasingly looking to add on investments to expand their capabilities and stay competitive. These add on investments, often referred to as acquisitions or mergers and acquisitions (M&A), allow companies to acquire talent, technology, products, customers and market access. While add on investing carries risks, it can also provide significant rewards if done thoughtfully. This article explores the strategies and considerations around add on investing for companies looking to grow.
Target complementary businesses to expand capabilities
Many companies pursue add on investments in businesses that are complementary to their existing operations. For example, a software company may acquire a data analytics platform to expand into new technologies. Or a manufacturer might purchase a distribution company to gain downstream capabilities and get closer to customers. The key is targeting businesses that augment current offerings and provide new opportunities for growth.
Consolidate a fragmented industry to achieve scale
In some industries, acquisitions are used as a strategy to roll up smaller competitors and gain market share. Companies like Amazon and Facebook have made numerous acquisitions to consolidate power in their markets. While scaling through acquisitions can be challenging to execute, it allows companies to gain scale and increase competitive moats.
Obtain talented management teams and desired culture
Beyond products and technology, companies can also use acquisitions specifically to obtain talent. This allows quick expansion of capabilities by integrating an existing team. Cultural fit is often a key consideration here – acquiring a team with the desired values, work styles and mission alignment can boost success.
Gain speed to market with an established business
Building new products and services from scratch takes time. Acquiring an established business with existing products, customers and market presence provides a faster path to growth. The tradeoffs around integration and valuation have to be weighed, but add on investments can enable faster time to market.
Diversify into new markets and geographies
Expanding into new markets or geographies often presents a chicken and egg problem – it’s hard to gain customers without a local presence. Acquiring an established business already operating in the target market provides quick access. The local teams, relationships and distribution presence can allow for faster geographic expansion.
Add on investing provides a rapid pathway for companies to expand capabilities, enter new markets and consolidate competitors. But careful diligence across strategic fit, valuation and integration planning is critical for success. Approached strategically, add on investments can become a powerful tool for growth.