Acquisition growth without organic growth leaves flat stagnant periods in the revenue life cycle.
Overview
Strategic acquisitions can further a geographic reach, increase revenue and after consolidation synergies are realized, increase net profit margins. Once an acquisition is assimilated into an organization, there are true benefits to growth through the M&A approach. However, growth predominantly through acquisitions leaves lingering questions about sustainability for future increase.
Organic Growth Is Equally Important
An organization that increases through acquisition but lacks organic growth may have cause for concern long term. The ability to grow organically shows the propensity for future progress which is not reliant on acquisitions. While acquisitions can drive a large impact in a short amount of time, organic growth is a sustainable vehicle that will pay long term dividends.
Without organic growth, an organization is stagnant aside from M&A. With organic growth, a company’s nucleus operations swell while potential M&A targets are being identified. Organic growth also provides confidence post acquisition that the acquired company will drive increased profit beyond the cost synergies realized once the acquired company is assimilated into the whole of the operations. If you’ll pardon a racing analogy; it is the organic growth that is the gas priming the engine while the acquisition is the nitrous oxide boost that surges progress forward.
A Beautiful Combination
When superior organic growth and solid acquisitions take place within an organization, confidence in future revenue progress and cash flow increase. A company which has proven it can grow organically establishes a predictability with future increase.
When acquisition growth is then layered on top of organic growth, revenue can surge. Organic growth without acquisition growth can be a longer term process and may not meet the desired timelines of stakeholders and investors. Conversely, acquisition growth aside from organic growth can pay short term dividends but lack increase longevity.
The combination of growth factors working harmoniously creates multiple avenues for the company to succeed and reach its target goals.
The Fuel For Each
Organic growth can help stimulate acquisition growth. A company with a rocket trajectory is more attractive to an owner that is looking to hitch a ride on a comet or whom is looking to release their company into capable hands. Organic growth creates predictability within a business model for strategic planning.
Acquisition growth is great PR for a company which is looking to land similar targets within a respective industry. The boost from acquisitions can create cost synergies and economies of scale which position the organization in a more favorable position.
The combination of the two is what sets the foundation for companies to become a leader in their industry. This synergy creates wonderful byproducts that will help stimulate future growth such as positive branding, attracting higher levels of talent and market penetration and expansion.
Conclusion
When determining your PEO’s future growth initiatives, be sure to outline goals for both organic and acquisition growth. When combined appropriately, this provides predictability with sustainable growth initiatives while providing the opportunity to reach your goals in an expeditious fashion. Ultimately sustainable growth hinges on a company’s ability to deliver value to its customers. Operational effectiveness must coincide with growth initiatives.
Business Resource Center, Inc. specializes in creating, leading, coaching and executing organic growth initiatives within the PEO space. BRCI also works within the M&A space in sourcing potential acquisition targets and provides industry expertise during the due diligence process. To learn more about how BRCI can impact the future of your PEO, please visit us on the web at www.biz-rc.com, email us at info@biz-rc.com or call us at (949) 510-1126.