By Douglas Martin, corporate finance partner, Anderson Anderson & Brown LLP, Chartered Accountants.
Acquisition search activities can play a key role in ensuring that the right acquisition targets are identified by a potential purchaser, yet it is an area which is often overlooked and rarely treated with the attention it deserves. In many ways it is natural for purchasers to pursue 'obvious' targets and businesses which are being marketed for sale, but will that approach necessarily produce the best results? So how do you use acquisition search activities to your benefit in identifying the right targets?
1. Review acquisition strategy in context of firm's growth strategy
On too many occasions there is a disconnect between a firm's growth strategy and its acquisition strategy in the sense that potential targets being pursued do not fit with the overall growth strategy. If acquisitions form a part of a firm's growth strategy it is advisable to develop a formal acquisition strategy which is clearly aligned with the firm's overall growth strategy.
2. Clearly define acquisition criteria
A key part of developing a formal acquisition strategy is to clearly define specific acquisition criteria. Unfortunately there is a significant amount of time wasted by companies reviewing potential targets which are retrospectively ruled out for fairly generic reasons. Whilst purchasers like to maintain an element of flexibility in their acquisition strategy it is always advisable to be as focussed as possible in terms of specifying key acquisition criteria such as market position, locations, customer profile, financial performance and potential deal size.
3. Detailed acquisition/market profiling
Once the acquisition criteria has been specified, the next stage is to conduct a detailed review of the market to identify targets and to effectively create a working database with details of all possible targets. It is important in this context to tier the targets into specific categories linked to the overall acquisition strategy. This process will facilitate detailed discussions at management level as to the strategic fit of potential targets and the outcome of this typically will be that a shortlist of 3 or 4 targets is identified from the overall list of targets. Following this it is likely that formal approaches will be made to the most attractive targets. This will facilitate talks with the shareholders of the targets and ultimately this can lead to the purchaser completing an 'off-market' deal which can be a distinct advantage to being involved in a competitive bidding process.
4. Post acquisition integration
As part of the acquisition search process it is important to consider the key potential risks associated with the integration of the target and develop possible mitigation strategies - clearly if the integration of the target is deemed to be challenging then this needs to be considered up-front in terms of the potential shareholder value than can be realised from the transaction.
5. Project management
In addition to the factors noted above, it is critical that the acquisition search process itself is managed effectively. Many organisations do not have the in-house resources to co-ordinate and drive forward the process and this can result in a lack of efficiency and significant time delays. The companies which adopt a rigorous approach towards acquisition search activities are far more likely to identify the right targets and deliver greater shareholder value from acquisitions over the medium to long term.
