Business acquisition in the community sector in New Zealand

Abstract

The community sector in New Zealand is diverse, and organisations within it receive their income from a variety of sources. Those sources of income are not currently enough to meet real, perceived, and anticipated need. This research looks at one potential strategy which has not been widely used to date, that of business acquisition, in order to explore if it could provide a viable additional source of revenue for community organisations, and in what circumstances. Using a transdisciplinary approach, the research considers the use of business strategies not commonly found in the community context.

The research is based on interviews with eleven chief executives, senior managers and consultants in the community sector who had experience with or interest in the strategy. In particular the research focussed on organisations that had already adopted business-like practices and met the broad definition of social enterprise. The participants were asked a range of questions designed to address: 1. What conditions need to be in place for a social enterprise to acquire an existing for-profit business? 2. To what extent is it necessary for an acquired business to have aligned purposes, values or outcomes to those of the social enterprise? 3. What conditions need to be in place for a social enterprise to successfully run an acquired business long term, and to ensure its on-going profitability and sustainability?

The research found that the strategy of business acquisition could produce a viable source of revenue for community organisations provided a number of relatively complex criteria were met. Three stages were identified for the strategy including getting investment ready, due diligence on an acquisition, and then the effective running of the acquisition. All three stages needed to be done well. In particular the need for skilled governance, a thorough understanding of business practices, and access to affordable investment capital, were essential to even considering the strategy.

The research also found that if the identified criteria were not met then the strategy of business acquisition carried the very real risk of undermining the organisation, even to the point of closure. Exploration of risk factors was integral to the research, both the risks involved in the strategy, and the risks involved in doing nothing. Regardless of whether this strategy was undertaken by an organisation, the research found that reaching and maintaining a state of investment readiness was important for organisations to enable them to be proactive and creative in meeting their mission.