>>>Mergers and Acquisitions Research: Target Identification
Mergers and Acquisitions Research: Target Identification2018-11-18T13:50:20+00:00

Mergers and Acquisitions Research: Target Identification

Mergers and Acquisitions: Target Identification

The role of M&A

M&A can be a key strategy for growth. It can also be effectively used as a tool for competitive advantage.

If you are looking to find a potential merger or acquisition candidate, it’s not so easy for a number of reasons.

  • Many potential targets may not know who would be interested in merging with, or acquiring them.
  • Others have not even thought about the synergies of a merger or realized that they were worth being acquired.
  • And finally, companies that wish to merge or be acquired may not want to make that fact public knowledge as it could disrupt their current business.(This is not unlike an employee who is actively seeking another job – discretion and confidentiality are common.)

How do you identify targets?

For the sake of simplicity, let’s say that the act of acquiring or merging with another company follows the same procedures and shares the same set of objectives.

If you have determined that your strategy is to grow by merger versus organic means, then you must create a set of guidelines or criteria to be met.

  • What industry or industries, products, markets,or regions served should be considered?
  • What type of ownership (private/public, minority, veteran or woman-owned), work culture or management styles are preferred?
  • What size customer base or sales revenue is desirable?

You can begin to compile a list of companies with whom you are currently doing business — either those you sell to or those you buy from in your supply chain.  Having an existing relationship and contacts facilitates identification of appropriate targets.

  • Your customers may be purchasing products or services from other companies that are used in conjunction with yours, and thus be able to suggest appropriate targets.
  • And if suppliers are providing products or services to other companies or industries, they may also be able to provide an introduction to key contacts at targets.

Next, you can consider your competitors. If you are selling to many of the same companies, a merger should provide many synergies and cost saving opportunities. However, joining forces with certain former adversaries is difficult and might lead to the removal of one management team.

No matter what, if you are planning a merger of acquisition, find out if that target business already has plans to sell, the intention of its management to stay involved, and for how long. Also, try to determine why they are selling.

Outside Support

However, if the foregoing approaches are not satisfactory, enlisting the aid of an intermediary makes a lot of sense.

  • There are brokers who are eager to make a match between clients with whom they already have a relationship.  But their lists are limited in that regard.
  • A consulting firm may be better able to contact and interview potential candidates, but more so, identify and call upon far greater numbers of prospects that meet specific, predetermined criteria.
  • If merger candidates are in other countries, a firm with knowledge about, and contacts within such regions can be of great value.

Assistance from a neutral, objective source can also be in the form of impartial feedback and guidance in clarifying the profile of the ideal target. And in some cases, such an outside third-party might suggest merger candidates from other industries or markets that had not originally been considered.

So while you can perform much of the assessment of a target company yourself, there is a role that only an experienced outside agency can provide.

Due Diligence

Among other things, due diligence involves verifying that claims made by a target are correct. Whether done by one’s own legal or financial staff or not, certain fact checking can be done by a third party. For example, they can

  • confirm that the target business owns key assets such as property, equipment, intellectual property, copyright and patents
  • determine the status of any past, current or pending legal cases
  • check the background and profiles of key executives
  • perform analysis of financial statements
  • validate sales projections

Market and Competitive Intelligence

An independent consulting or market research firm can help with the conduct of MI and CI. They can gather background information on such items as:

  • market conditions and changes
  • factors affecting pricing, sales and profits
  • the condition and future health of the business
  • identifying the target’s key competition

In addition, such a company can help to identify and interview both customers and suppliers of a target without mentioning your company or its intentions. By using an outside firm, you can learn more about the strengths and weaknesses of a target and its reputation/image as perceived by both buyers and sellers who do business with it.

Summary

  • Among other strategies, growth by merging with a competitor offers an excellent way to gain customers, increase market share and revenues while decreasing overhead and other redundant expenses.
  • Merging with a supplier offers the benefits of vertical integration plus the expansion of your market.
  • Either approach is challenging, but the potential rewards make it all worthwhile.