How to Develop an Acquisition Strategy
Acquiring a new business is an excellent way for a company to expand and thrive. It can also help businesses by creating new products and diversifying their client base. However, if you want to make an acquisition, you need to design a merger plan and implement strategies that ensure your company meets its objectives. In this article, we’ll discuss the fundamentals of acquisition strategies and explain how to create your own.
Companies frequently acquire other businesses for a variety of reasons. Whether the company wants to obtain economies of scale, diversify its portfolio, gain a larger market share, or reduce overall costs, it must first examine the companies it intends to acquire.
Having clearly outlined requirements enables the company to focus on qualified target companies while swiftly eliminating prospective deals that are not a suitable fit for either the acquiring company or the target company.
By determining this criterion, you will be able to:
Reduce the risk of purchasing a company that does not meet your short-term and long-term goals. Rather than waiting for possible prospects to show themselves, actively seek out target companies. Align your company’s management and shareholders with potential acquisition opportunities in the future.
Here are a few practical steps for developing an acquisition strategy.
1. Mission Statement for Acquisition(s)
Writing a clear mission statement for your acquisitions will serve as a reference point whenever your objectives get undefined, or a target does not appear to be a good fit.
The most profitable acquisitions happen when a company understands exactly what it wants before a suitable target becomes available.
2. Set Metrics for Target Company
The target company’s specifications will be influenced more by the acquisition mission statement.
For example, if your mission statement indicates that you desire to purchase a leading company in your industry on the East Coast, exploring companies outside of that location makes little sense, even if they appear appealing at first sight.
Typical parameters include:
- Maximum acquisition price
- Target revenue and income
- Target location(s)
- Market segment of target
3. Set Reasonable Timelines
Set a reasonable timeline for your company to achieve its goals. Although everyone wants to close a deal in 2-3 months, this is typically not a realistic timeline for the significant number of deals.
Although the deadlines will be somewhat flexible, they are, however, important. They allow your organisation to plan its budget for the next year or two and to integrate the acquisition into your larger set of corporate objectives.
4. Allocate and Define Responsibilities
The next stage is to designate roles and duties for the whole M&A process. This might be one of the company’s directors, a recruit specialising in M&A, or a paid consultant like an attorney or investment banker.
Whoever is in charge should offer regular feedback – weekly or monthly – on appropriate targets, progress on prospective deals with targets, and the overall status of the market as they see it.
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5. Design a Target Search
The scope of your search will be defined by who is in charge. Outside M&A professionals will usually have well-developed networks and will be able to return to work with potential targets relatively quickly. The procedure will most likely take longer with an internal employee.
Naturally, the number of potential targets is also affected by how broad your search parameters are.
6. Define an Outreach Strategy
Suppose you’ve identified what you think to be the ideal target company and want to make the first contact; who do you contact and how do you get through to them?
The advancement of your approach is a crucial but sometimes neglected aspect of an acquisition strategy. Sending emails expressing interest in M&A to a company helpdesk is not proper.
7. Pre-Negotiation Strategy Meetings
Preparation is critical for getting the most out of negotiations with target company owners.
Before initiating talks with any target, discuss it with your team and outline your contract terms. This should contain the highest amount you’re prepared to pay for the target company, how a deal can be structured, and where funding will be procured.
Solid acquisition strategies underpin successful acquisitions. This means setting clear, achievable targets over agreed timelines, and putting a team in place to ensure the targets are met.
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