17 Acquisition Strategy Advantages and Disadvantages

An acquisition strategy is a comprehensive plan which outlines an approach that leaders will follow to manage risks and meet objectives within a program. The strategy is designed to guide how a program is executed over its entire lifespan. It should be updated every time the program meets a major milestone or requires a review.

There are 6 primary elements to an acquisition strategy. They involve business strategies, contracting strategies, identifying major contracts, the use of incentives, data management, and long-term sustainment.

The strategy should outline the requirements necessary for success in these 6 areas. Various items should be addressed within these requirements as well, such as cooperative opportunities, equipment validation, and a benefits analysis.

Here are some of the advantages and disadvantages to consider when looking at an acquisition strategy of your own.

List of the Advantages of an Acquisition Strategy

1. It can help to fill-in critical service gaps.

The marketplace is an ever-evolving entity which requires businesses to be on their toes. Changing circumstances create gaps in the services a business is able to provide to their target demographics. By implementing an acquisition strategy, these businesses are able to continue providing core offerings to their clients without a service interruption.

2. It allows for an efficient method of obtaining needed assets.

Many industries are seeing service gaps because they have a shortage of needed talent. An acquisition strategy can help businesses identify people with these talents, then work to acquire their services. Intellectual property is another core asset that benefits from the implementation of an acquisition strategy. IP is actively bought, sold, and traded as a way to make progress toward industry dominance.

3. It provides an opportunity to create leverage.

There are two ways to create leverage through an acquisition strategy: cutting costs and balancing revenues. Mergers are a common component of an acquisition strategy because it allows an organization to consolidate multiple operations or resources that overlap into one specific entity. In return, these can increase the negotiating or buying power of the organization.

Revenue balancing occurs when new markets are acquired, allowing for more products to be sold or prices to be raised. As part of the acquisition strategy, companies can move to open new territories, reduce competition, or expand their customer base through new sales opportunities.

4. It allows for an evolving business model.

Many businesses today use a business model which is based on billable hours. Some businesses use fixed fees and performance incentives. As cloud-based services have evolved, subscription models have growing in popularity as well. With an acquisition strategy in place, firms are able to transition from their current business model to a new one that may have more lucrative revenues waiting for them. It is much cheaper to acquire a new model than to develop one internally.

5. It saves time.

An acquisition strategy helps develop internal resources very quickly because those resources are directly purchased. It’s like being hungry and wanting a hamburger. If you go to the local diner, you can have one ready in a few minutes and do zero work to have a meal. At home, you’ll have to do all the work, pay a similar cost for the ingredients, and create a value for your time involvement. It’s easier to order the burger from someone else.

6. It reduces training costs.

An acquisition strategy is able to reduce internal training costs because you’re bringing in resources that you’ve acquired. These resources are already fully developed. You can then use those resources to train others within the organization to diversify the internal skill set of everyone. At the same time, you’re bringing in the customers, contacts, or prospects that the experienced individuals, businesses, or brands have already developed.

7. It meets the expectations of the stakeholders.

An acquisition strategy makes it easier to meet the growth expectations that some stakeholders may have. Not every stakeholder will insist on a specific acquisition strategy, or ask to review one, but everyone tends to be happier when investment returns happen. When there is an internal pressure present to meet specific metrics or perform to certain results, using an acquisition strategy is an easy way to make good things happen.

8. It creates reduced barriers to entry.

One of the biggest advantages of an acquisition strategy is the ability to eliminate entry barriers to new markets. When an acquisition occurs, the resources acquired become immediately usable. That reduces the risks of an adverse reaction occurring in the new marketplace, while avoiding the costs of proposing new products or services without the acquisition.

List of the Disadvantages of an Acquisition Strategy

1. It creates a clash of different cultures.

When an acquisition strategy is being implemented, there will always be a clash of cultures involved. It doesn’t matter if the deal happens through contracts or a merger and acquisition process. When there are differences in culture that are extreme, then problems are created in multiple departments. Even if you are clear about the expectations of your acquisition strategy going into the process, there can be rogue elements who attempt to derail it because they are dissatisfied with current events.

2. It reduces differentiation within the marketplace.

Consumers benefit when there are high levels of competition in a marketplace. Businesses benefit when there is little competition in the marketplace. The process of an acquisition strategy benefits businesses because it opens up new lines of potential profit. It is a disadvantage to everyone else because prices tend to rise, the quality of products or services may go down, and a brand can even dilute itself.

3. It can become a distraction.

When an acquisition strategy is being implemented, the responsibilities of such an action tend to occur within the C-Suite or highest levels of the organization. That means the people who are the most senior tend to be saddled with the acquisition responsibilities, along with their own work. If the C-Suite becomes too engaged with the acquisition strategy, they may neglect their internal teams, which can lead to lower production levels. In severe circumstances, ignoring internal needs can even cause an acquisition strategy to eventually fail.

4. It may create confusion within the marketplace.

T-Mobile and Sprint had been pursuing a merger for some time. In 2018, they finally announced a deal that would make the first steps of the merger happen. The two CEOs released a video together which announced the deal and what the companies hoped to accomplish with upcoming 5G technologies. The comment section of the video was filled with customer questions that were all along a similar vein: what is going to happen to my service?

Confused marketplaces are common within an acquisition strategy. It happens because there is an uncertainty in the future. Confusion can also occur when one company pursues an acquisition strategy outside of their industry. General Electric is a good example of this. At one time, they made appliances, owned NBC, Universal Studios, and a bank.

5. It may hamper the strength of a brand.

When a marketplace becomes confused, the strength of a brand will eventually suffer. That is because the reputation of a business, multiplied by their visibility, creates strength. An acquisition strategy affects this equation in multiple ways. A strong brand may acquire a weak brand, then attempt to use the weaker brand’s equity as a way to promote themselves in new markets. New brands that are strong regionally may be unknown in another region. That is why a slow transition tends to be the best solution to implement during an acquisition strategy.

6. It can create financial fallout issues.

The expected benefits of an acquisition strategy may not occur with the speed or size that stakeholders expect. It may never materialize at all. When that occurs, the loss of senior personnel may occur, including those responsible for the acquisition strategy in the first place. It may also result in core customers deciding to walk away.

7. It can create internal fallout.

When an acquisition strategy is implemented, some employees may feel like their job security has been threatened. The strategy may include areas of diversification that are difficult to bring together as well. It may require some managers to be responsible for duties, services, or products of which they are completely unfamiliar. When this occurs, high levels of internal fallout may occur. This process can turn a healthy organization into an unhealthy one very quickly.

8. It may come at too high a cost.

When an acquisition strategy doesn’t go as planned, the costs of it can climb quickly and steeply. Those costs may exceed all initial projections. There may not be enough value in the acquisition to justify it, yet the process may be too far along to stop it as well.

The advantages and disadvantages of an acquisition strategy suggest that it can be a way to grow markets, improve revenues, and increase consumer confidence. If done incorrectly, it may reduce market growth, decrease revenues, and cause consumers to look for alternative products. Each of these key points must be carefully balanced for an acquisition strategy to be successful.