Should recruitment company owners buy a business for immediate growth or opt for organic development? Before you decide, it’s best to take professional advice to get the most out of your chosen course. 

First you should define, with your shareholders, the growth strategy that best suits your aims. Do you want to grow into a new sector, a new geographical area, increase scale, create a new synergy, enter a complementary sector, acquire new brands or integrate your own supply chain?

Once the best strategy for growth has been agreed, look at the options of organic growth and acquisition to achieve your business aims.  

Organic growth takes time to reach financial targets. It is, however, normally less expensive than acquisition, and if a company is growing organically and profitably, there are grounds for considering it, as it usually carries less debt and is less stressful to the organisation. It also requires a strong business plan.

Acquisitive growth offers a company an immediate step change. By buying another business you can improve earnings and efficiency, speed entry into a new market, import management talent, achieve economies of scale and eliminate a competitor. It can also improve your product range, technology and sales force.

However, the payback to your business has to be reasonable. Buying another organisation is worthwhile only if it is fully integrated. Identifying duplications, merging and divesting when necessary, and communicating clearly with shareholders throughout will ensure that an acquisition works well.

If an excellent acquisition can be identified ‘off market’, the buyer gets a much better deal without competitive bidding. You need to establish a target price, a timescale for acquisition, any involvement from the vendor’s management team post-completion and acquisition terms. This can include deferred payments or a cash/shares split.

Once you have a deal in principle, and heads of terms are signed, formal due diligence is completed. It will make sure you are getting what you’re paying for – and if it isn’t you can either reduce the price or walk away.  

Carl Swansbury, director, Ryecroft Glenton Corporate Finance