Organic growth is just one way a company can grow. Growth by acquisition is another way. Companies can take over competitors, businesses providing similar products and services, or companies totally outside their core competency. The aim of course is grow revenues and profits, without paying too much for that added growth.
There are many risks associated with acquisitions, including overpaying. One of the main ways of reducing the risks is to acquire companies or businesses providing similar products or services, and with a similar business focus and culture.
There have been a host of high profile acquisitions lately, including Metcash's expansion into auto parts. Here's four you probably haven't heard about.
Blackmores Limited (ASX: BKL) announced on the 2 July that it was paying up to $40m to acquire FIT-Bioceuticals, a provider of nutritional supplements mainly to alternative health professionals, such as naturopaths. According to Blackmores, BioCeuticals range of products will complement Blackmores own, and gives the company greater distribution channel diversity. Bioceuticals CEO, Sean Hall, said that both companies focus on nurturing an innovative 'family' culture, and both have strong leadership positions in their markets.
In 2011, Bioceuticals had $38m in sales, and earned $4.6m in earnings before tax, depreciation and amortisation. Blackmores is funding the acquisition from existing debt facilities.
BigAir Group Limited (ASX: BGL) also released an acquisition announcement yesterday. The company reported that it was acquiring fixed wireless network operator Link Innovations (Link), for between $1.75m and $2.75m dependent on the performance of Link in financial years 2013 and 2014. Link appears to be a complementary service to BigAir, providing a similar service to similar clients – that is a high speed fixed wireless network with high quality corporate customers. Link is expected to contribute between $2.4m and $2.8m in revenues in financial year 2013. BigAir has also reported that the acquisition is expected to deliver significant cost, capital expenditure and revenue synergies.
BigAir is funding the acquisition from existing cash reserves and future cash flows.
Cardno Limited (ASX: CDD) announced two acquisitions today, with the company acquiring Marshall Miller & Associates (MM&A), a US mining, energy and environmental consulting firm, and EM-Assist Inc, a US environmental and compliance management firm. Both US businesses appear to have similar proficiencies as Cardno, as an infrastructure and environmental services company.
Cardno is paying up to US$31m for MM&A, and up to $14.25m for EM-Assist. Both acquisitions will be funded mainly from cash, with the remainder from new shares.
Reckon Limited (ASX: RKN) also reported today that it was acquiring UK company, Linden House Software (Linden). Linden develops and distributes products called Virtual Cabinet – a document management solution and Virtual Portal – a client portal solution that allows businesses to collaborate online. Linden's products are sold to a variety of clients with the strongest presence in accounting practices, financial service providers and insurance companies, and will be integrated with Reckon's existing product suite.
According to Reckon's CEO, Linden's products will round off many of the company's software solutions, and provide a good future opportunity for Reckon. The price will be based on the performance of Linden over the next three years and is expected to cost between $9m and $22m.
The Foolish bottom line
Some companies excel at integrating acquisitions into their business, extracting cost savings and increasing revenues and profits. QBE Insurance Group (ASX: QBE) is one such company, with many acquisitions in the last few years.
It's yet to be proven if the above three have made the right move with their recent acquisitions. Only time will tell.
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Motley Fool writer/analyst Mike King owns shares in QBE. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
