Identifying acquisition targets
In the first of a series of guides looking at how to buy a business, our corporate finance team discuss how to identify an acquisition target.
Buying a business is one of the most important decisions you will make, so thorough research is vital to identify a target that fits your growth strategy.
It’s also important to start with a blank canvas – your perspective should be open and objective.
Many acquisitive firms use specialist corporate finance advisers because their commercial knowledge and technical skills can not only save a great deal of time but, crucially, allows those involved to continue focusing upon their existing business.
There are numerous ways of finding a potential target and while an internet search is an easy way to start, accessing company information databases is often more productive. It is also helpful to visit trade shows, consult industry associations, and look through trade publications to establish a ‘long-list’.
The next step is to refine this into a shortlist. The criteria for making this judgement will vary for each acquirer, but often revolve around the relative size of the potential acquisition, proximity to the buyer (either geographically or in terms of complementary activities), and the profitability of the potential target.
When compiling your shortlist it’s important to look at this from the potential target’s point of view. What ‘buttons’ do you need to press in order to make your approach as attractive as possible to them?
For example, look at the shareholding structure. Establish if there are private equity shareholders who may be looking for a medium-term exit. You should also find out the age of the owner or majority shareholders – individuals nearing retirement will be more likely to welcome an approach.