Is Acquisition a Valid Growth Strategy for Your Bar or Nightclub?

Image: maxsattana / iStock / Getty Images Plus

When we hear the term “acquisition,” we tend to jump to multi-billion dollar deals involving huge corporations. As the owner of a thriving bar or nightclub, deals of this nature are unlikely to appear in your future.

Once you get past the headlines, though, you find that most business acquisitions aren’t measured in the billions of dollars. Growth by acquisition has proven to be a viable strategy even for small and medium-sized bars and nightclubs. Whether it’s the right strategy for your unique location is the question you should really be focusing on. In some cases, it makes more sense for a small bar or nightclub operation to grow organically by:

  • seeking investment;
  • opening up satellite locations;
  • or franchising.

The world of bar ownership is full of examples of owners who have successfully implemented all these strategies, including acquiring their competition. Let’s quickly review the pros and cons of organic growth and acquisition, so you can determine which is best for you.

 

Organic growth in the bar and nightclub industry

Without a doubt, organic growth is the simplest, most natural way for a foodservice and entertainment business to grow. It also offers an owner the highest level of personal control over the speed and direction of the process. Growing organically won’t eliminate challenges that naturally arise during the growth process.

For instance, whether you strictly grow your nightclub business organically or you take a more aggressive route, trying to match the pace of hiring with revenue growth will remain an ongoing concern. By remaining focused on improving your bar’s services and steadily increasing its marketing, you’ll likely find organic growth to be easier to control in the long run.

 

Growth by acquisition in the bar and nightclub industry

While organic growth definitely has its benefits, growth by acquisition can also be very successful. And, in some cases, it’s the preferable option.

Organic growth tends to take quite a while to achieve. Buying a bar, on the other hand, can happen quickly and provide nearly immediate benefits.

As a bar owner, growth by acquisition involves buying out your successful competition, either to convert their operations to additional locations of your own brand, or just to expand your business while maintaining the status quo at each purchased location.

In many cases, acquisitions in this industry occur almost unexpectedly as a fellow bar or nightclub owners hears through the grapevine that one of their own is looking to retire, move, or for some other reason sell their place. However, it’s certainly worth exploring as a deliberate, long-term growth strategy if there are a number of successful locations in a relatively small area, or if your unique brand is proving irresistible to customers and you want to “strike while the iron is hot” by converting one or more other local bars into satellite locations.

It’s important to recognize that there are other options available that may accomplish these purposes more effectively than acquiring one or more additional businesses. For instance, licensing your brand to the current owners, or creating a franchise arrangement that they can buy into can achieve similar outcomes, but with far less upfront capital expenditure on your part.

Acquisition definitely has some potential cons to go with its pros. Any time an existing business is purchased by another, there’s a good chance the transition will be rocky. Internal pressures, culture clash, reorganization, and market changes are just a few of the potential headaches. In addition, as noted above, acquiring another business is likely to be one of the most expensive growth strategies available to you, so it comes with the greatest level of risk due to either loss of working capital or incurring heavy debt.

 

Is acquisition right for your bar or nightclub?

There’s no way for an article on a website to definitively answer that question for you. Far too many factors unique to your situation, including your own personal aversion to risk, play into the answer.

To succeed, careful, strategic planning is needed to ensure the growth you’re after is viable and sustainable over the long term. You specifically need to consider whether you can afford the acquisition costs and any loss of profitability during the inevitable transition period.

If you’ve decided to buy a bar or nightclub to expand your operation, continue monitoring the competition to see where you can create synergies, but also keep an eye on the situation outside your immediate community. Do your due diligence when you come across bars for sale in your area or the regions you’re considering expanding in.

In all cases, your goal prior to signing on the dotted line should be to determine whether buying one or more additional bars or nightclubs will help you meet your growth and revenue goals. Since that’s probably not your area of expertise, it’s smart to consult with your accountant or financial advisor to weigh the pros and cons of an acquisition.

 

About the Author:

Bruce Hakutizwi is the U.S. and International Business Manager for Dynamis LTD., the parent company of us.businessesforsale.com. Bruce is passionate about helping small businesses succeed and regularly writes about entrepreneurship and small business management.