Buying a Business: Search and Screen Strategies for Target Acquisition

Admittedly, most completed merger and acquisition activity in corporate America fails to meet expectations. At worst, visions of grandeur collapse in a whimper. For the truly focused and …

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Admittedly, most completed merger and acquisition activity in corporate America fails to meet expectations. At worst, visions of grandeur collapse in a whimper. For the truly focused and disciplined acquirer, M&A can prove one of the most surefire boons for scaling company growth. Unfortunately, acquisition for the sake of acquisition ignores the prerequisite rigor necessary to produce a positive return for shareholders. What follows are some general rules-of-thumb for searching and screening targets for minimizing downside risk and maximizing gains when it comes to acquisitions.

  • Hone scope of industry search based on predetermined criteria outlined by your M&A team and company board. Stay focused on key sectors and define target industries for opportunity search and discovery.
  • Once you’ve nailed the target industries of choice, source publications, associations, websites, blogs and expert industry content that will increase tacit knowledge relative to current trends. In particular, it is wise to stay abreast of current M&A activity. This can help acquisition operatives to understand market multiples, trends and understand what to expect when you eventually delve yourself.
  • In most cases it’s also wise to join industry trade organizations and stay current and active in their chapters and meet-ups.
  • Following current trends will provide a leg-up on performing a full industry situation analysis. This analysis can include growth expectations, maturity cycles, market seasonality, current and future pricing expectations and expected profitability. This discovery phase is used to unearth key economic drivers that may have a sway on the decision to target and acquire.
  • Keep communication cohesive with streamlined nomenclature for all project management stakeholders. Misunderstood definitions can slow communication later on in the process, resulting in costly errors.
  • Build an exhaustive list of industry players. Rank them by varying factors. This exercise will help you to understand a bit more about the nature of each of the top contenders in the field, their size and how business models differ.
  • Build an exhaustive list of industry contacts. The list of the top-tier experts in the field could include anyone from reputable industry bloggers to plant and project managers within specific companies. It may even be helpful to covertly follow them on Linkedin and other social networks.
  • Begin to source deal-flow on websites like BizBuySell, MergerNetwork and BusinessBroker.net. Doing so will open your eyes to what’s out there in your focus industry and will help you know a bit more of what to expect.
  • Depending on the size of the acquisition which you desire to make, it may be wise to begin to establish targets which may not be expressly on the market. From there, build an exhaustive book on everything you know about these businesses.
  • Once targets are zeroed-in, reach out to principles, CEOs, managers and board members. Build rapport with the top stakeholders to any potential transaction.
  • Develop pre and post-acquisition strategies for the targets of interest. This preliminary work will help you anticipate fires before they burn down the proverbial forest.
  • Try your best to obtain price expectations from the selling company. All too often buyers and sellers have a wide gulf between them on the expected valuation of the business. Buyers need to understand seller expectations if a deal will ever be consummated. 
  • If the target represents a stand-alone private business, performing exhaustive credit reports on the business of interest can at least help to mitigate some of the down-side risk we talked about.
  • Start negotiating. Once both parties have most of their chips on the table, negotiations begin. Preliminaries and expected valuations should be on the table and will quickly escalate to a middle-ground or no deal is done.
  • If a deal is reached between the parties, due diligence commences quickly thereafter. The previously-mentioned business integration plan goes into effect and the business becomes a key part of the buyer’s portfolio.

The aforementioned “to do” list is somewhat of an oversimplified representation of what typical shakes-out as a very complicated and exhaustive process. Complete books and full-length business courses have been devoted to some of the single bullets listed above. It is surprising to note how frequently helpful and sometimes necessary pieces of the M&A search and screen process are either woefully overlooked or outright ignored.

Truly successful acquisitions require the disciplined focus of an entire integration and strategy team. From finding the right prospects to integrating them into an existing and successful system, each component includes nuanced and temperamental pieces which, if left unchecked, can cause M&A deal implosion. And while no deal is ever over ‘till it’s over, best-practices at least assist in mitigating the sad tale of yet another failed acquisition.

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