One way to deal with the competition - buy it

David Newport

Many business owners have resigned themselves to an absence of growth in these troubled times.

Fair enough, you might say - after all, growth by normal means is difficult enough in a stable market, but in recession?

Possibilities for businesses include instituting a new advertising programme, putting more reps on the road, launching a new direct mail campaign, dropping prices to buy market share or placing a larger Yellow Pages ad.

A combination of all of the above could work, but what about increasing market share by buying the competition?

These are troubled times for all businesses, so owners in any industry who are finding things tough can reasonably suspect their competitors will be as well. If this is the case, a timely, well-thought-out approach could net a big prize.

The first step is to get the approval of the bank, and I asked bankers we deal with what type of transactions they are most likely to finance in this market.

They said banks want to deal primarily with the devil they know - they still have to lend money in order to make money. If there are existing bank customers wishing to purchase a competitor, that appears to be the path that offers the least risk.

The next step for a sound business that has its financier's buy-in is to employ the services of a buyer's agent.

A good description of what a buyer's agent is can be found here.

The key to this process is that the broker works for the buyer, so any appraisal or negotiations during the process are on behalf of you as the buyer, not the seller. The benefits of this methodology are clear:

* You as a business owner can target a company or business category that interests you;

* It happens now, rather than on the off-chance that the business owner decides to list the business for sale;

* Your identity remains confidential until the business owner has agreed to the process;

* You have a third party handling all the negotiations, and those negotiations are for your benefit. Any resulting purchase will be on your terms and conditions.

Growth by acquisition in a recession makes sense. Your target company will never be cheaper, interest rates are lower than in recent memory, and financial institutions are encouraging it.

* David Newport is a principal at Switch Business Ltd - Business Sales & Acquisitions experts.