Strategic Acquisition Searches

Proactive instead of reactive approach

A strategic approach to identify suitable acquisition targets normally leads to better results than reacting opportunistically to acquisition proposals presented by random sellers. That this approach works best is demonstrated by the applied practices of leading acquisitive players such as Multinational Corporations and Private Equity Firms.

Multinational Corporations normally already have built a pipeline of promising acquisition candidates and even run sophisticated simulations how the combined companies would look like. Sometimes they spend years analyzing the opportunities in very much detail and expanding their acquisition pipeline in order to ensure that they pursue the best options for themselves. They monitor their pipeline on a regular basis and will move forward once they are sure they can get the targets at the terms they want.

Private Equity firms also need to analyze a large quantity of investment opportunities so that they can pick and choose to pursue only the most interesting ones. This means building up a network with parties which can provide quality dealflow, approaching companies directly and also investing time explaining its investment criteria.

Simply put, finding good M&A acquisition targets is a result of effort put into the process. Its actually quite time-consuming and requires some groundwork to be done first. Sometimes it takes the study of a large number of acquisition options in order to find one good one. Also negotiations with company owners can take time, thus in order to ensure one opportunity comes through, one needs to have a solid funnel of quality acquisition options.

Since professional players follow this approach, there is no reasons why also not SMEs can benefit by applying the same approach.


M&A Advantages of Strategic Acquisition Searches

From an M&A perspective, conducting a Strategic Acquisition Search offers a variety of advantages and can avoid situations of competitive auctions as the initiative starts with the buyer. Thus here a summary of the advantages of applying a strategic acquisition search is presented:

  1. Disciplined and proactive approach offers better chances of success rather than a reactive approach
  2. Allows the validation and fine-tuning of search criterias
  3. Analyzing a large number of acquisition options leads to better industry know-how
  4. A positioning as proactive buyer will receive some goodwill and preference by the seller


How it works?

Normally strategic acquisition searches follow the following process:

  1. Agree on objectives, transaction rationale and search profile
  2. Research and identify suitable acquisition targets
  3. Approach targets and find out if they are interested in selling
  4. Analze and study the targets
  5. Site visit
  6. Negotiating Letter of Intent
  7. Due Diligence / Closing
  8. Review of M&A Deal Pipeline and Closed Transactions

Above project offers a well structured framework for strategic acquisition searches. The result is the build up of a solid pipeline of acquisition targets which are meeting the desired acquisition criteria. As selling a company is an important decicion, delays and obstables are part of the process. For this reason its important to have some patience and consistently follow through on the options presented.

Its also important to check on the shortlisted targets on a yearly basis to find out if their circumstances have changed and if the envisaged deal might have become feasible in the meantime.

The acquisition is executed as soon as an agreement on price and transaction structure can be achieved.


Important Aspects

The acquisition search should consider several important aspects to make it as effective and efficient as possible:

  • The objective and rationale of the envisaged transaction should be clearly stated at the beginning. This makes it much easier to convince potential sellers to enter into discussions.
  • Preparing the required documents in advance such as a standard NDA at reasonable terms and the evaluation framework makes it much easier to proceed fast and navigating around potential obstacles.
  • Price obviously is a sensitive topic. In general, it should only be discussed once the company’s financial situation is clearly understood. However in some cases, especially if price is very important in the industry or to the buyer, it can be necessary to check the price expectations of the seller upfront.
  • Keeping a door open is especially important if negotiations do not go as planned. Here transparent explanations of the applied evaluation logic can help to create trust and keep doors open so that the opportunity can be re-evaluated some time down the road. Many M&A deals did not come through on the first attempt but came through later on, thus some persistance is required.
  • The same evaluation framework should be used to analyze the opportunities in a consistent manner. This ensures a disciplined process is applied and decisions base on fact based rational arguments. Such framework will mostly focus on financials and valuation aspects in order to ensure the acquisition is value accretive but should also include vital aspects of relevance to the buyer including synergies and integration considerations. This provides an effective comparison to find out which targets are really the best ones in the pipeline and it will also lead to good questions and fine-tuning of the evaluation criteria.
  • Success is mostly an equation related to probability and quality of the deal flow. The better quality deal flow one can find, the higher the chances of success. Dito the more good opportunities one can identify, the higher the chance that one will come through.


Why working with an M&A Advisory Firm?

Especially SMEs which might not have their own corporate development department can benefit from working with a professional advisor as he can provide an outsourced corporate development office. The advantages are:

  1. Experience and process know-how of the advisor
  2. Time consuming process – management simply will not have time for such a process and needs to focus on the daily business
  3. For target companies its easier to share initial information with a third party rather than a potential competitor
  4. Systematic process which ensures all approached targets receive proper treatment and feedback

As Privilege Partners we have extensive experience with proactive acquisition searches in whole Europe and have managed to provide our clients with solid deal pipelines of acquisition candidates. We know the do’s and dont’s as we have assisted our clients to identify and analyze hundreds of companies of interest and know how to follow through in the most efficient manner.

Contact us if you like to discuss your acquisition strategy.