This is the third step of McKinsey & Co’s ‘Staircase to Growth’, and in the broking channel such strategies can be increasingly relevant as businesses look to do more to compete in a crowded space.
To know more about the saircases to growth, read: “How to grow your business: the art of business growth in seven simple steps”
While there will always be a place for small brokerages, those with their minds set firmly towards growth should analyse their business to see if acquisition or consolidation is a viable pathway.
The November 2015 ‘Capital Confidence Barometer’ by Ernst and Young revealed that 53% of Australasian businesses are thinking of an acquisition in the next 12 months. Despite this, Credit Suisse research that analysed 550 completed acquisitions by Australian-listed companies from 1995-2014 showed shareholders in the acquiring company suffered under performance of more than 1 per cent over the 12 months after the acquisition was announced.
Even though these statistics apply to listed entities – they do provide a valuable lesson about acquisitions in general. Namely, acquisitions are a popular growth strategy but they do not always lead to success. An extensive planning phase and focus on strategy is ‘make or break’ when it comes to this step to growth.
According to McKinsey & Co’s research paper ‘Five types of successful acquisitions’, there are five questions you should ask yourself before you acquire a business, or move towards consolidation:
- Can you improve the target company’s performance?
- Will consolidation remove excess capacity?
- Will acquisition accelerate your access to the market you are targeting?
- Will consolidation/acquisition give you access to skills faster than you can develop them yourself?
- Are you picking a winner? Have you spotted them early, and can you help them develop their business?
You don’t necessarily need to answer ‘yes’ to all of these questions to move forward with an acquisition strategy – but it is important that you have at least considered them, and have tangibly mapped out where the value lies with your acquisition or consolidation plan.
Once you have moved down the acquisition pathway and grown your broking business – it is important to still seek support from third parties.
At PLAN Australia, we specialise in supporting groups who either write significant volumes or who want to leverage their size and scale to write more significant volumes. We are the only aggregator with a dedicated group for larger businesses, and we drive a specialised program designed to enhance their growth prospects even further.
In my next blog on business growth – we will begin discussing innovation, and how this is key to evolving your offering and keeping your customers happy.