Acquisition Scout – a step by step plan

Mergers and acquisitions (M&A) offer significant potential for organizations to grow and evolve rapidly. Many businesses are increasingly turning to acquisitions, with activity in this area developing pace  through 2024. However, M&A can be complex and challenging, with substantial risk, high costs, and demands extensive efforts from a team of specialists. Moreover, a poorly executed M&A deal can have damaging consequences for a company. Acquiring the right company is one of the most crucial steps to ensure success. This article will discuss how to spot the right acquisition target.

Assess the Market:

When initiating mergers and acquisitions (M&A), it’s crucial to begin by evaluating the market and forecasting future trends. Staying informed about current trends can be challenging but is vital for maintaining a competitive edge. In today’s fast-changing world, it’s detrimental to remain stagnant while competitors forge ahead.

Here are key components to include in a market trend analysis:

  • Keep track of leaders, niche players, influencers
  • Listen to customers; always listen to customers!
  • Observe Competitors, and find new competitors
  • Keep up to date with technological developments
  • Use companies like TKM Consultants, who have a broad but in depth view of certain market segments e.g. the agency or martech landscape

Identify Gaps:

Not all strategic plans can be executed immediately because they depend on the current state of the company. Corporate development teams need to collaborate with business leaders to assess the company’s present position, map out its existing strengths and resources, and then compare these with the desired vision to pinpoint areas where improvements or new capabilities are needed.

Identifying these gaps provides a clear understanding of the investments and efforts required to align with the corporate strategy effectively. This process ensures that the company’s goals are achievable within the context of its current capabilities and resources.

Filling Gaps:

After identifying the gaps in capabilities needed to achieve the corporate strategy, the next step involves conducting a buy-build-or-partner analysis. This is a methodology that helps companies make strategic decisions about whether to build a new capability in-house, buy it through acquisitions, or partner with another company that already has that capability. The analysis helps the corporate development team determine the most effective way to acquire the required capabilities.

Setup Acquisition Criteria:

The process of identifying M&A targets typically involves considering several key criteria to ensure a successful and impactful acquisition:

  1. Company Size: The size of the target company is important as it should have a significant enough scale to make a meaningful impact on the acquiring company. This is often assessed based on factors like revenue size or employee count.
  2. Profitability: Target companies should demonstrate profitability, indicating a successful business model, stability, and potential for future growth.
  3. Geography: The geographic location of the target is crucial. Synergies may require close integration, making local or regional targets more suitable. Alternatively, if the goal is market expansion, targeting companies in distant markets may be beneficial.
  4. Product or Service Type: Evaluating the products or services offered by the target is fundamental. Assessing whether these offerings align with the acquiring company’s strategic objectives is a primary consideration.
  5. Cultural Alignment: Cultural compatibility is vital for the success of an acquisition. Both companies should share similar values, work ethics, and long-term goals. A mismatch in culture can lead to integration challenges and ultimately undermine the success of the merger.

By carefully evaluating these criteria, companies can identify potential M&A targets that not only complement their strategic goals but also offer the best prospects for successful integration and long-term growth. Focusing on these factors helps mitigate risks and enhances the chances of achieving synergy.

Approaching the company:

Once you’ve identified your priorities, approach target companies subtly without immediately expressing interest in acquisition. The initial goal is to build relationships and gather information about the company.

If the conversation progresses positively, the target company will likely request a non-disclosure agreement (NDA) before sharing sensitive financial details. It’s crucial to involve the legal team and have the NDA thoroughly reviewed before signing. After obtaining financial documents and conducting initial due diligence, it’s best to assess the feasibility of an acquisition. This approach ensures that all necessary information is gathered and evaluated before making any formal decisions.

For more information on TKM’s “Acquisition Scout” Services, please contact Managing Partner, Anil Noorani at hello@tkm-consultants.com