Another weekend treat! In this third extract from my latest book, The Acquirer’s Playbook, I examine the final stages of search for the ideal target.
Stage 3 – Ensure Targets Exist
It is important to check that targets exist that match your precise Acquisition Profile. E.g., one initial Acquisition Profile described securing a software company with sales in excess of $50m in a geographical region with specific features. It produced zero targets. Think again. Another Acquisition Profile defined targets too broadly regarding a generic set of characteristics for US distribution companies. The profile produced 1000s of candidates – refinement clearly was needed.
There are many ways these days of establishing a quick and dirty list of potential target numbers. These target companies are often designing their web sites with search engine optimization advisers to ensure they are found by customers!
By inserting this search phase into the process, you give yourself an immediate perspective. You quickly get a feel for the language of certain web sites. You can see how some targets are telling better stories.
You can pick up on crucial topics that targets are covering in their blogs. This gives you great insight into how targets think.
Often this early reconnaissance work will force you to change your Acquisition Profile as the market facts and figures are gathered. Some targets may jump out at you because of their insights. You are building a map of the sector, the people, and the companies. LinkedIn is particularly useful for seeing the connections between people. Connections those people didn’t even know they had.
The objective of this stage is not to document every possible target company but instead to clarify that you can expand into this sector knowing that a collection of attractive companies exist. The process is very similar to the approach of world-class sales professionals trying to understand the most likely candidates for their services. From a distance, some sectors look attractive until closer examination reveals a lack of fit.
Stage 4 – Acquisition Profile Agreed
It is now possible to sign off on a measured shopping list which reconciles to an attractive strategy with sufficient initial targets. This Acquisition Profile is a powerful document.
Developing Strategy can take weeks or months to get right, but you can see the measured preparation that goes into it. You are forcing management to consider post-acquisition integration and fit with the current core business right out the blocks! Instead of looking all starry eyed at what is for sale, you are ripping the emotion out of the process and focusing on the type of companies that fit well inside your comfort zone and that align with your strategy.
By presenting this type of thinking to the Board, whether it’s a large private company, a small, medium, or large public company, or some form of mutual bank, everyone is brought on board.
The Acquisition Approvals Model recognizes a key fact of business. The longer you take to abort from a project, the more expensive the abort costs! You do not want to run an acquisition all the way to due diligence only to find the Group Board isn’t behind your thinking.
Influence your team early by conducting rigorous analysis up front. Treat acquisitions as a tool for executing your strategy. This can be hard work, but the odds of the successful integration of target companies are poor. These projects do not have a great track record. However, behind all successful acquirers you will discover a robust process that is relentlessly executed every time. You will see checklists consistently followed. Success with acquisitions comes the hard way – through exceptional preparation.
At the end of every phase of the Acquisition Approvals Model, there is a crucial stage. There is always a sign off. The sign off forces the team to ask the question, do we want to move to the next phase? Sometimes the best decision is to stop and start again, rather than drive forward with the wrong strategy.
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