The key to business success is customer acquisition and retention. A company can expand its operations by gradually expanding its client base and ensuring that the product it sells is of value to its customers.

But a quicker route to grow a business is through the acquisition route. While this strategy can yield instant results it is also fraught with risk and can easily backfire.

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A company that has mastered the art of growing rapidly by buying up other businesses is Violet Lim’s Lunch Actually.

Launched in Singapore in 2004, Lunch Actually specialises in arranging dates for busy single professionals who want to meet like-minded people. In its 11-year existence, the company has expanded to six cities in Southeast Asia and established a strong brand for itself.

Over the last decade, the Lunch Actually group has made a number of acquisitions including Thailand’s top personalised matchmaking service MeetNLunch. It has also bought out dating app Love Out Loud Asia (LOLA) from the Fatfish Internet group.

Prior to this acquisition, Dating Loft, a dating agency in Singapore was acquired and brought into the Lunch Actually fold.

There can be many rationales for buying out a company. Access to new markets can be one. Sometimes an acquisition can give the company that is making the purchase economies of scale or the ability to offer products that are complementary to its own.

Access To New Markets

When Lunch Actually bought out Thailand’s MeetNLunch, it expanded its market to a new country and achieved an ability to grow its business exponentially.

If it had expended the same efforts or resources in its home market and tried to grow organically, it would not have been as successful. By foraying into an altogether new market, it was able to attain a far greater level of expansion.

One company that has pursued a strategy of growth through acquisitions very successfully is IBM. Many years ago, it got out of manufacturing and decided to concentrate on software and consultancy.

In the period 2002 to 2009, IBM bought out 70 companies for a total of about $14 billion. The synergies it gained and access to new markets gave it tremendous benefits.

IBM has seen that each acquisition it makes enables it, on an average, to increase the acquired company’s revenue by 50% within the first two years. Subsequently, revenues rise by 10% over the next three years.

After Violet Lim’s acquisition of MeetNLunch, it was possible for the Lunch Actually group to make inroads into an entirely new market. An additional benefit of buying the company was access to the local knowledge that MeetNLunch had.

Importance Of Culture Fit

When acquiring a company, Violet needs to understand many things about the target. Does it have talented people? Are the systems and procedures well defined? Is its market reputation sound?

But before taking up any of these considerations, Violet first tries to understand whether the target company’s culture is compatible with that of Lunch Actually.

When Courage Gym, a dating site for singles, was being considered for acquisition Violet saw that there would be an ideal cultural fit between the two organizations.

Courage Gym concentrates on teaching singles how to behave with members of the opposite sex. Lunch Actually and Courage Gym worked so well together that it led to the launch of Lunch Academy, a service that went one step further and offered image coaching to single professionals.

It is important to remember that when a company is acquired, its employees will feel insecure and nervous. They may fear that they could lose their jobs. Even if this is not the case, the working style of the new management may make them uncomfortable.

It is up to the senior personnel in both the acquired and acquirer companies to set the tone and ensure that the merger does what it set out to do i.e. the combined business of the two companies should be more than the sum of its individual parts.

Facebook’s acquisition of WhatsApp is a good example of a successful merger. WhatsApp’s founder, Jan Koum reassured his team and made sure that the company retained its identity while successfully integrating itself with Facebook.

The acquisition was presented as a partnership between the two companies and Jan Koum was able to arrange for Mark Zuckerberg to meet the WhatsApp team in person to reassure them of their continued role after the merger.

Acquisitions Need Not Be Expensive

One of the best ways to create value is to buy a company at a low price. Sometimes this is possible if the market is depressed. In other cases, the owners of the target company may be in a hurry to divest and cash out.

This is a good situation for the acquiring company. But in normal circumstances, it may not be easy to implement this strategy.

Even if a fair market value or a slight premium is to be paid for the company that is being bought, it is possible to structure the deal in a manner that benefits both parties. Violet has used this route and achieved excellent results.

Instead of offering an all-cash deal it often makes more sense to buy a company by adopting a revenue-sharing policy or by paying partly in cash and the remaining in shares. These methods have the added advantage of keeping the entrepreneurial spirit of the owner of the acquired company alive.

A Common-Sense Approach Works Best

There is no single formula to making an acquisition create value for the acquirer. Violet Lim’s Lunch Actually has done well by being very careful about the companies that it decides to buy.

She is careful to have a thorough understanding of the company’s operations and management style before committing herself. If she is not sure of this she uses a two-step approach.

Initially, only a token investment is made in the target company. Once it is clear that the merger can work, a complete buyout is undertaken. This procedure was followed when the Lunch Actually group acquired Courage Gym.

Using a mix of organic growth and strategic acquisitions the Lunch Actually group has grown to become the biggest dating agency in Southeast Asia. Its brands include eSynchrony, LunchClick and Lunch Actually Academy.

Much of its success is due to its ability to spot the right companies to buy and then execute the amalgamation process flawlessly.

The company is still in expansion mode and on the lookout to expand its operations, both within the cities that it operates in and in new locations.