Achieving the Right Deal Flow

Achieving the right deal flow is all about maximizing the value of your time and minimizing the risk of mistakes. That seems obvious. But it’s harder than it looks. While data analysis is a critical part of the process, humans ultimately decide which targets to pursue and how much time, money, and effort they are willing to risk.

Here are a few suggestions for identifying the best acquisition targets, whether you are brand new to the M&A process or an investment group that receives hundreds of pitches a year.

Clarify your goals.

What benefits does your organization hope to achieve? Does your company want to expand its geographic reach? Acquire game-changing technology or intellectual property? Get access to better production facilities or distribution channels? Absorb the competition? Eliminate the risk of disruption by start-ups? Diversify its product portfolio? Achieve a certain level of financial returns for investors?

What benefits matter most to your organization? What types and sizes of companies should you look for? Document your criteria in terms of:

  • Financial characteristics
  • Industry sectors
  • Types of transactions you seek

Make sure that your business partners and shareholders support the goals and objectives you have identified.

Develop evaluation criteria and processes.

What type of data does your team need to compile a list of potential targets? For example, you may want data on a potential target’s revenue, profitability, geographic footprint, customer base, product and service offerings, intellectual property, and ownership structure.

Some (but not all) data will be publicly available.

For example, you can glean information from business databases, association membership directories, press releases, and public filings. Scan trade publications, equipment manufacturers’ case studies, and press releases.

What companies are making news for innovative business models or products? Which firms are recognized for their thought leadership, strategic partnerships, or above-average growth?

Keep in mind that not all publicly available sources will be equally reliable. A published list of the “top 200 companies” in a given field might not include some larger, well-run privately held businesses. Some private businesses choose not to publicly disclose their revenues.

If you want to gather details that aren’t publicly available, M&A advisors and market analysts with expertise can provide useful guidance. They can also confirm whether the preliminary data you gathered on your own is accurate or not.

Develop a list of target companies.

Use the data that you have gathered to put together a short list of companies that might fit your criteria for potential deals.

Some companies on your list might not be receptive to a proposed acquisition this year or next year. If anyone in your organization has already received inquiries from one of the companies on your short list, consider that a sign of readiness. On the other hand, if some on your team is already acquainted with the owners of the business, you might be able to get a sense of when they might be planning to sell.

Or, ask a trusted advisor with expertise in your target industry to recommend stand-out companies that might be ripe for acquisition. An M&A advisor with experience and connections in your target industry can also suggest under-the-radar companies you might not be aware of.

Rank your list by target companies in terms of attractiveness.

This scorecard should take into account how well existing data about each company matches your most important evaluation data and strategic M&A goals.

If a company on the list isn’t a perfect match for your most important criteria, don’t write them off immediately. Perhaps additional research will reveal important data or assets that couldn’t be gathered during your initial evaluation process.

Conduct more extensive research on your top targets.

Develop summary profiles of your top targets that includes strengths, weaknesses, competitors, and potential business disruptors. Review social media or review sites to see what customers or employees have to say about the company, its products, or its leaders.

Re-evaluate your initial rankings.

Did the additional research change your perspective on whether a company might be one of your top three acquisition targets? Did your research uncover some potential companies you might have overlooked?

Determine the best way to express interest.

How and when will you reach out? Getting the right message to the right person can be a pivotal moment in the M&A process. Getting a “warm introduction” from an industry advisor that the business owner already trusts can give you an early advantage over other companies seeking acquisition targets.

Consider factors beyond the numbers.

There are no guarantees in the M&A process. Managing risk is a fundamental part of the process. While data can help you find potentially beneficial acquisition targets, data can’t always predict how the owners of a targeted business will respond to your expression of interest.

As humans, we don’t always listen to initial business propositions in a logical, rational way. This is especially true of company founders or owners of family-run businesses. Building and running a successful company requires a certain level of ego and self-confidence. Letting go of a business and moving on can be an emotionally complex event, especially when family dynamics are involved.

As a trusted M&A advisor within the packaging, label, and specialty graphics fields, I can help. Through our business matchmaking program, we can help you find acquisition targets that we have already vetted in terms of their emotional and financial readiness to sell. We can make “warm introductions” and create deal flow opportunities that help your investment group stand out in the initial approach.

To learn more, call me at 561-543-2323 and I will explain how our business matchmaking process works.