What the Middle Market Can Learn from Big Mergers

Multi-million and billion dollar deals dominate the news, and sometimes it can be difficult to see how these transactions apply to your company. But if you look past the zeroes and dig down into the “why” of an acquisition, you’ll find there are many lessons for middle market executives looking to grow their companies through strategic M&A.

Most acquisitions center on one of the following common reasons to buy:

  1. Increase top-line revenue
  2. Expand in a declining market
  3. Reverse slippage in market share
  4. Follow your customers
  5. Leverage technology
  6. Consolidate
  7. Stabilize financials
  8. Expand customer base
  9. Add talent
  10. Get defensive

Let’s take a look at a recent example from earlier this month. Coach announced it would acquire Kate Spade for $2.4 billion. Declining traffic to department stores, likely driven by the rise of ecommerce, means Coach and Kate Spade need to find new ways to generate revenue. Both companies have been hit by weak sales. The acquisition is not just about financial engineering and cost savings that will result from combining operations, but about accessing a powerful brand name and new, millennial customers, which Coach views as a growing market. About 60% of Kate Spade’s customers are millennials.

Building a recognized brand name takes a significant amount of time and effort, and gaining customer loyalty is even more difficult. Through acquisition, Coach can rapidly expand its footprint in the millennial market. While you might not be in fashion, consider how you might access your desired customer base. Can you reach these customers through organic means, or will acquisition prove to be more effective?

Keeping an eye on big mergers can help you think of fresh ideas for growth, regardless of the size of your company. I encourage you to use the list of 10 common reasons to buy as a framework for analyzing the underlying strategy of deals so that you can develop new strategies for growth.

Photo credit nakashi via Flickr cc

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