How to Build a Robust Pipeline of Acquisition Prospects

Finding the right partner is a crucial component of successful mergers and acquisitions and pursuing a deal with the wrong company can be a costly mistake. We’ve all seen the headlines of major mergers and acquisitions that have fallen apart at some point along the deal – whether it’s before the transaction closes or during integration. On the other hand, if done right, with the correct partner, strategic M&A allows a business to grow rapidly and effectively and gain a competitive advantage.

When searching for companies to acquire, it is important to keep three things in mind: Strategy, demand, and options.

Strategy First

Any successful M&A process must begin with a solid, strategic rationale. Why do you want to make an acquisition? What will the acquisition accomplish? How is M&A aligned with your overall growth strategy?

It makes no sense to pursue M&A simply for the sake of it with no real plan in mind. That is like starting out on a trip without a map (or GPS or smartphone) and hoping you will arrive at the correct destination. Make sure you have a plan and strategy.

Be Demand-driven

Once you have developed your strategy, you should determine the right market to focus before you being looking at individual companies. This “markets-first” approach allows you select markets that have a healthy, stable demand for your acquisition partner’s products or services. Without taking future demand into consideration, you risk acquiring a company in a shrinking market where demand for its products and services are in decline. Avoid pursuing these unqualified acquisition prospects by selecting the best markets for growth before researching acquisition prospects.

Have Many Options

While you may only be acquiring one company, it’s not enough to only pursue one acquisition prospect at a time. You do not want to spend all your time and effort pursuing one company only to risk having the deal fall apart in the end. Deals fall apart for a number of reasons – the owner get cold feet, you can’t agree on the deal terms, a competitor comes along, etc. If you have only looked at one company you will find yourself back at square one with nothing to show for all your time and effort spent chasing the deal.

In fact, it takes up to 75 to 100 candidates to identify the right deal. It’s not enough to have a plan B, you need a plan C, D, E, F, and so on. We encourage you to broaden your search for prospects to include not-for-sale companies. Not-for-sale simply means the owner is not actively considering sell – not that they will never sell the company. By including not-for-sale companies in your search you significantly expand your universe of potential acquisition prospects.

Think of your prospect pipeline as a funnel. Gradually, as you move forward in the M&A process, you will eliminate candidates that are not an ideal fit with you strategic rationale for acquisition. With the “funnel” approach you can move prospects along simultaneously, in a systematic and efficient manner.

Learn more about Building a Robust Pipeline of Acquisition Prospects in our webinar on March 17.

Date: Thursday, March 17
Time: 1:00 PM ET
CPE credit available.

Photo Credit: Barn Images

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