what is the best way to select targets in wowp

Growth by acquisition is an ambition harboured by many businesses, large and small akin, but how to start? What'due south the best manner to identify potential conquering targets in a way that improves the chances of ultimately converting a value-enhancing, strategically relevant business?

Acquisitions offer the opportunity to take major leaps in terms of size, market place, geography, engineering and profitability in a relatively curt space of fourth dimension and ultimately at a much lower level of adventure than internal investment over a long period.

However, despite the attractions of acquisitions, everybody knows the stories of companies who have got it badly wrong. Victanis exists to help customers maximise their chances of getting it right. In this series we will lay out some of the key elements, from our feel, that are vital to the successful implementation of conquering strategy.

Begin at the Beginning

Information technology has been known for Victanis to be presented with the post-obit proposition: "Nosotros accept a lot of cash. We ought to practice something with information technology. What can we buy?" At present, it is truthful that this sentiment is non e'er put to u.s. in such baldheaded terms. Withal, it is somewhat surprising how often this attitude predominates initial exchanges with prospective clients.

In our feel, however, the chances of completing a successful acquisition are determined to large extent earlier even a start target has been identified. It is of kickoff importance for a business to know its own mind first earlier embarking on the acquisition trail. A clear sense of strategic rationale is required, and this takes a number of dissimilar strands of action.

Thou&A Growth Strategy: What is Essential When Starting Out?

Proactive, not Reactive

The counterfeit example above of the visitor with more cash than sense often seeks outside aid in one case the business has realised the futility of waiting for the targets to come to them. Sell-side advisors, online exchanges and existing relationships have their place, of class, simply to radically improve the chances of buying a good company at a reasonable multiple it is important not to rely on being invited to talk over with companies or wait to be invited into processes.

Instead companies demand to be proactive from the start and we will particular a number of means and approaches below. Nevertheless, in essence what nosotros are talking about here is a combination of enquiry, strategic thinking and an approach that is ultimately much closer to Business Development in that it requires an appreciation of where your own business organisation is positioned and where it wants or needs to be combined with an sensation of the external market dynamics. Finally, information technology demands existent choices be made to maximise the chances of success to enable a coherent approach that recognises that the 'Perfect' can ofttimes be the enemy of the 'Skillful'.

Knowing Where You lot're Coming From… and Where you Want to go

Rather than beingness led past what is apparently available, it is always worth putting in the time and effort to develop a proper strategic rationale for acquisitions. This is not only because it will pb to coherent thinking and better choices, non only to assistance with internal buy-in only fundamentally because when looking for options, a well-divers prepare of key criteria is a 'must'. There is a strong need to develop a sense of what kind of business you are looking for before you get out and expect.

Given that information technology is also unlikely that every arroyo to target will be successful, a number of options needs to be developed. Again, well thought out criteria is the primal here in drawing up a select list while discarding others from the 'long listing'[ane].

A strong strategic purpose is likewise very helpful when initially approaching targets. It is rare that direction and owners are only interested in price, although naturally this remains a key element. Management, shareholders and owners oft desire to hear about why their business organisation is interesting to you, what difference their concern will make and where the business volition fit into the larger organisation over the next v years or so. These questions are ofttimes driven by a business for the residual of the staff but also often the senior management'due south own future role. Also, it is natural when people have invested much of their lives in an enterprise to want reassurance that what they have congenital will not be dismantled carelessly.

Strategic forethought ahead of target screening and earlier initial meetings accept taken place is therefore a neat advantage at the offset of an acquisition process and leaves an impression of serious intent that can carry a process through many a difficult give-and-take around price, profit recognition, warranties, etc. Clarity about strategic objectives is essential because these will define your criteria and lead your initial approach. Merely ultimately, it is non besides much of an exaggeration to say that ensuring strategic coherence prior even to initial introductions is what tin can comport you lot over the line at the back-end of the process.

Merger Acquisition vs. Organic Growth

What Selection Criteria?

A strategic approach to developing central criteria for a comprehensive screening do can as well open up up a more flexible range of suitable targets; if you lot know the context in item you can make ameliorate choices regarding how a new entity will contribute.

However, the number of criteria should exist limited (no more 5) and be realistic. The perfect business may exist out at that place…just it'due south unlikely! Better still is to design criteria that enable y'all to grade opportunities and ultimately rank them.

Some realistic sense of 'availability' is obviously a central criteria, but non ever possible to measure precisely. Other examples of of import criteria are;

• size and profitability – Is the business organisation large plenty to justify the cost of acquisition? Will it enhance or dilute profit margins?
• geography/region – Does the target have a position in a strategically important state or region?
• sectors – Will the business support the penetration of new sectors, leading to a strengthening of the company's resilience?
• types of activities, expertise/offering, blazon of products or services – Are the services or products offered like or complementary to your ain company'southward? Will this enhance or detract from the coherence of your current service offer/product portfolio?
• customer sectionalization – Will the target let you to access new customers? Will it allow you to strengthen your position with your existing customers?
• synergies – Not the kind of 'synergies' that are anticipated to justify an inflated multiple, but are there genuine opportunities to make '1+i=three' or even more than (over time)?

Using a 3rd. Political party as an Expert Resource

Victanis has skillful knowledge in a number of detached sectors and important geographies in Europe. But it is often not well understood why it is an outside resource can add real value to a concern's acquisition process, given that in many cases companies accept earmarked significant resource for the process in the first place.

Others, such as Corporate Financiers, will often offering company screening exercises in the hope of winning process mandates in the future just non always with the thoroughness and commitment that screening exercises require to successfully deliver an bonny list of conquering targets. We strongly believe that it is important to ask the question, "Does whoever is screening targets for my concern to potentially acquire fully understand:

• MY business – How we exercise business organization and where nosotros need to go? And…
• OUR marketplace – Do they know the market intimately? Do they know what acquisitions take worked for others in this sector? Can they bring a depth of knowledge and experience that volition cut through the marketing found on websites etc.?"

You need to be bodacious that whoever is doing the screening understands the process both from the perspective of the target and the perspective of you as an acquiring business concern. Ultimately, will they accept a strong sense of identifying and selecting the best 'fit' for the acquirer?

Supporting Grooming for Initial Target Approach

As mentioned earlier, the initial coming together with a advisedly selected target is of disquisitional importance and will ofttimes make-or-break a deal right then and in that location. Every bit a outcome, detailed grooming is essential.

Equally role of this a detailed analysis of selected targets that form the 'brusque list' is very helpful. This analysis needs to be of a quality significantly advanced from that used to identify the 'long listing' of targets. A farther refinement of choice, tactics and approach is and so possible and is often done best in the course of a workshop with direction, M&A director and supporting 3rd. Political party expert altogether in the aforementioned room to nowadays and analyse. This also has the additional advantage of strengthening and broadening stakeholder buy-in at an early on stage. Such a workshop has oftentimes been helpful in identifying potential obstacles that were not considered initially.

Even large organisations sometimes struggle to fairly resource this kind of approach, allow alone SMEs. Merely every bit this preparatory phase is of such importance to the overall success of the acquisition procedure, we believe it merits serious consideration.

[1] 'long list': An exhaustive process to identify all possible targets in a given sector, state etc. 'Short list': the refinement of the 'long list' to validated, attractive and realistic targets according to a gear up of articulate and previously agreed criteria.

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Source: https://www.victanis.com/blog/growth-by-acquisition-how-to-identify-potential-acquisition-targets

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