Does this sound familiar? You want to grow through acquisitions, but there are no good companies to acquire. While it may seem like there are absolutely zero acquisition prospects, usually that is not the case.

Many companies struggle to find acquisition prospects because they are focusing on only on industry partners, suppliers, or competitors they already have a relationship with. We call these companies the “usual suspects.” There’s nothing wrong with looking at the “usual suspects” for acquisition opportunities, but if you find you are hearing the same company names over and over again without getting any results, it may be time to try a new approach.

Here are four more ways to find quality acquisition prospects in addition the “usual suspects”:

  1. Market Research – In researching the market you will naturally uncover a few potential acquisition prospects. You will also have the advantage of gaining a deeper understanding of the market which will help you select the best companies to acquire, evaluate potential acquisition candidates, and negotiate with owners.
  2. Trade Shows / Associations – Both are an excellent source for finding many companies in your desired industry in a short amount of time. Walk the floor of a trade show and you’ll see dozens of companies all in one location and many trade associations also member companies listed on their website.
  3. Internal Input – Use the resources you already have. Your sales team is filled with folks who have their ear to the ground and are up-to-date on key players and new developments in the industry.
  4. For-sale Companies – Looking at for-sale companies is never a bad place to start your search. Just make sure you don’t limit yourself by only considering these opportunities. Including not-for-sale companies in your search will increase your chances for a successful acquisition. Remember, every company is for sale, for the right equation.

For more tips on finding companies to acquire join our webinar Building a Robust Pipeline of Acquisition Prospects on March 23.

After this webinar you will be able to:

  • Approach the search for the right acquisition prospect systematically
  • Understand effective research methods for identifying prospects
  • Develop criteria for your ideal acquisition prospect
  • Use tools for objective decision-making during the acquisition process

Building a Robust Pipeline of Acquisition Prospects

Date: Thursday, March 23, 2017

Time: 1:00 PM – 2:00 PM EST

CPE credit is available.

Photo Credit: patchattack via Flickr cc

The possibilities may be endless, but your resources are not. For many business owners with limited time and money, deciding which ideas to pursue can be a challenge. Here are three ways to prioritize your options for growth:

1. Start with your company vision

The best way to make sure you’re moving in the right direction is to take a step back from all of your ideas and begin by looking at your vision for your company. Who do you want to be as a company? When you have a clear picture of your goal in mind, it will be easier to visualize what steps you need to take in order to achieve it. Without a clear vision you could end up pursuing options that actually drag you in an opposite direction.

2. Use tools to stay objective

While it’s natural to be somewhat subjective, after all business growth is exciting, you don’t want to make decisions based on emotions alone. Try bringing objectivity into your decision-making process by using tools to evaluate and compare your options. When it comes to external, growth, we typically use the Market Criteria Matrix to evaluate the best markets for growth and the Prospect Criteria Matrix to evaluate acquisition prospects. This tool can be adapted to evaluate any opportunity for growth.

Keeping your vision in mind, develop about six key criteria of your ideal opportunity. Next, you develop metrics to quantify the criteria. For example, if one of your goals is to expand your operations to the West Coast, one of your criterion would be location and the metric could be located on the West Coast. Give each option a rating using a 1-10 scale and see how well the options compare to each other and to the criteria you’ve established.

3. Gather data

Making a decision without the proper information can be a big mistake. Conduct research to validate (or invalidate) your assumptions. You don’t have to uncover every granular detail, but it will be helpful to have an understanding of trends and how they will impact your market in the future. One of the best sources of information about the marketplace is your customers. Try identifying the needs and wants of current and future customers. It may even be as simple as conducting a customer survey or asking your sales department for input.

While it can be overwhelming to process through all your options for growth, the good news is that you have many options! Hopefully these three suggestions will help you organize your thoughts as you plan your next steps.

Photo Credit: Bs0u10e0 via Flickr cc

How many companies do you need to look at to do a deal? This is a common question we get from clients. Experience tells us you need to look at about 100 companies in order to execute one deal. That doesn’t mean you go through formal due diligence with 100 companies, but you do need to identify and do at least basic level research on them.

The Prospect Funnel

We look at this process of researching and selecting acquisition prospects like a funnel that narrows from 100 companies at the top to one deal at the bottom. In the beginning, you do basic research on 100 companies and measure them against your acquisition criteria. At this stage about half of the options are eliminated, so we’re left with 50 companies to do in-depth research on. Again you measure your findings against your criteria and about 25 companies pass the test. You call up the owners of these 25 companies, and about half of them will meet with you. Then you get maybe six second meetings, and you can agree to terms with at least one, maybe a couple, and out of that you negotiate a deal.

The Prospect Funnel

The prospect funnel is used to research and select the best companies for acquisition.

Have Many Options

Many are shocked when they hear about our approach because it seems like a lot of companies to get to one deal. People will say it takes too much time or resources to research all of the companies. However, as I noted above, you don’t need to do in-depth research and meet with the owners of 100 companies. At each stage of the process as you proceed down the funnel more and more companies get eliminated either because you find they don’t meet your criteria or because the owner doesn’t take your phone call or meeting.

Taking a broad approach at the beginning ensures you take the time to evaluate the marketplace and all of your options and that you have many options for acquisition. We do not recommend only considering one company for acquisition at a time because the deal could fall apart for a number of reasons. The owner could get cold feet or you could discover something during due diligence, and then you’ll have to start the acquisition search all over again.

Not-for-sale Companies

Another common objection we hear is that there are not that many companies for sale in the marketplace, I want to make sure you understand that we’re talking about looking at not-for-sale companies as well as for-sale deals.

We have lots of experience in not-for-sale acquisitions and when we work for a strategic buyer, we’re approaching companies whether they have a for-sale sign in front of their business or not. If it’s the right strategic fit, we’ll call them up and talk to the owner about selling their company or bringing in another company to own all or part of it.

Photo Credit: Feature Photo by Cydcor via Flickr cc, The Prospect Funnel by Capstone

Most people tend to go with their “gut” when making decisions rather than relying on the accurate data. You might think you’re the exception, but studies conducted by psychologists Daniel Kahnerman and Amos Tversky show that “when it comes to decision-making, humans are predisposed to irrationality.”

No one likes to think of themselves in this way, but the truth is that, as human beings, remaining 100% objective is very difficult. Inevitably, through the course of running your business, emotions come into play – as they should since you must have some passion to run a company and be successful. Especially in the thrill of a potential deal, facts can be brushed aside as feelings take over.

While excitement in mergers and acquisitions is important (you’re not a robot), over-reliance on your gut to process decisions can be a recipe for disaster. You need to pay equal attention to the facts in order to be sure of a successful outcome.

So how can we make good decisions and stick to the facts when it comes to pursuing acquisitions?

1. Recognize You are Human

The first step is simple enough: recognize that you are not always objective, and become an observer of your own natural impulses to emotion-driven decisions.

2. Develop Tools

Once you’ve mastered step 1, you can move on to developing tools that will help you remain objective.

Two of the tools we like to use are the Market Criteria Matrix which we use to evaluate and prioritize the best markets and and the Prospect Criteria Matrix, which serves the same purpose for identifying ideal acquisition candidates.

To use the first tool, you start by picking about six key characteristics of the ideal market in which you would want to make an acquisition.

Next, you develop metrics to quantify these criteria. For example, rather than saying your ideal market is a “high growth” market, you might say your ideal market is one that is growing at more than 5% annually. Do this for each of the criteria you’ve identified.

The Prospect Criteria Matrix works in a similar manner, but you develop and quantify criteria specific to company-level data.

By establishing quantifiable metrics to measure your criteria, you eliminate vague and emotionally loaded terms like “good,” “bad,” “large” or “small.”   You also ensure you collect equivalent information on each criterion for each market so that you can make valid side-by-side comparisons.

3. Ask Your Team

Whether it comes from your executive team, your functional leaders, or your third-party advisor, feedback from others helps your broaden your perspective and bring some balance to your decisions. Hearing a different perspective can help you take a second look at the information presented to you and either confirm or invalidate your analysis. Disagreements are sometimes necessary to arriving at the best decision. What matters is that throughout the process, you offset the inescapable impact of emotions with a good measure of fact-based analysis.

You may be surprised I’m saying this, but vigorous arguments in your acquisition team can be a good thing. In fact, I would be alarmed if there was never any disagreement over a prospective purchase. Either someone is lying or afraid to speak up, unless your entire team is quite exceptionally in sync.

Dissent can be uncomfortable, so it’s understandable that people tend to shy away from it. That’s why my firm has developed tools to manage these differences of opinion in a non-threatening manner.

One of the tools where we see this best played out is the Prospect Prioritization Matrix. Using objective metrics, each team member will individually rank a criterion for a prospective acquisition from 1-10. Once everyone has ranked the target company, we compare the matrices and see where there may be differences.

With this approach, you create the opportunity for a healthy, deep discussion about the company in question. Why did Susan give the company a 5 on technology while Jack gave in a 10? It’s not that one person is wrong or right; what you have now is the basis for further analysis.

The Prospect Prioritization Matrix rates companies according to criteria that you establish early in the acquisition search. But those criteria may need refining. One value of using the tool is that it makes that refinement possible. As you evaluate more and more companies, you find you’re gaining a clearer understanding of what you actually want from a deal.

One of the advantages of creating an acquisition team — an essential component of our Roadmap methodology — is the wide variety of perspectives and ideas it provides. Don’t shy away from conflicting views – you’ll be a stronger company for having these conversations, and you’ll increase your likelihood of acquisition success.

Photo Credit: Santiago Medem via Flickr cc

How can you tell a good company from a bad company?

A lot of CEOs say that they trust their gut when it comes to acquisition targets, but unfortunately instincts and opinions aren’t enough. We need facts and metrics. We need real tools to generate quantifiable data about the companies we’re considering. M&A is a massive undertaking and relying on instinct alone to guide you is a mistake.

The Prospect Criteria Matrix

One tool we use to help objectively evaluate potential companies for acquisition is the Prospect Criteria Matrix. It starts by defining the key characteristics of a good acquisition for your strategic objectives. In each case, you want to determine a way to quantify the criterion on some kind of scoring system.

For example, “good financials” may be one criteria and your metrics may be a revenue between $25 and $35 million, and a strong balance sheet. Other criteria could include customers or geographic location.

Typically we recommend clients limit to no more than six criteria. With more than six criteria, it’s easy to lose focus on meaningful strategic aspects of the company. Each individual criterion should have multiple, measurable metrics.

Weighting Criteria

But simply scoring the criteria is not sufficient. The information you gather needs to be weighted because not all criteria are created equal. Some factors will be more critical than others. You need to sit down with your team and identify the things that are most and least important to your organization. For example, financials might be a very high priority for your acquisition strategy, so you might weight that one at 30 percent. If location might be less important, and you’d give that 20 percent.  You juggle your criteria to add up to 100 percent.

So how do you use this tool? Let’s say you have 20 companies you’re evaluating. Get everyone on your acquisition team together and ask them to rate each company based on the criteria you’ve chosen. It usually works best to use a scale of one to ten. One company might get an eight in a particular category while another gets a three. Once you’ve established the average for each category for each company, you multiply by the weighting percentages to find the weighted average.

The Prospect Criteria Matrix helps you objectively evaluate potential acquisition candidates.

The Prospect Criteria Matrix helps you objectively evaluate potential acquisition candidates.

What’s even more important than the areas where everyone agrees are those where there is dissent. If you give a company an 8 on financials and someone else gives it a 2, then that should be the start of a conversation. And because you’ve chosen measurable criteria, you can compare the data rather argue about whose “gut feeling” is right.

The tool allows you to easily prioritize companies, and it also helps to confront some of the warning signs we’ve looked at above. For instance, if your CEO is pushing a “Brother-In-Law” company, instead of having an awkward conversation about why you think he’s wrong to be so enthusiastic, you can show him the data and insights generated by the Prospect Criteria Matrix.

Sometimes an acquisition that looked promising turns out to be less than ideal as you get closer to finalizing the deal. The question becomes: Should we proceed or should we back out?

Join me for our new M&A Express videocast, “When to Walk Away,” on May 13th. M&A Express is new, complimentary resource for middle market executives that teaches essentials of mergers and acquisitions in 20 minutes or less.

When to Walk Away

May 13th, 1:00 PM – 1:20 PM ET

Register here — it’s free

In this important videocast, you’ll learn clear criteria for abandoning an acquisition before it’s too late. The information here can save your company millions of dollars and years of heartache.

After the videocast I will be answering questions, so please have your questions ready. In the meantime you can contact or submit questions at any time by commenting on this post or using the contact form.

Learn more about M&A Express.

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Entrepreneurs rarely face the challenge of having too few ideas. In fact, like most entrepreneurs and business leaders you probably have a multitude of great ideas for growing your own business.

Your biggest challenge may be figuring out which of all the alternatives is the best way to get from where you are now to where you want to be.

We recommend using a systematic process to sort through all your ideas and create an action plan. Here are some steps in that process:

1. Think about your vision.

Where do you want your company to be in a year and in ten years?  All your initiatives should help you move toward this goal. If an idea isn’t helping you achieve your vision, then maybe you shouldn’t spend time on it.

2. Prioritize your ideas.

While all your ideas may seem wonderful, upon closer inspection you’ll likely find that some are more worthwhile than others. For example, if you envision taking your business national in the next five years, you may rate ideas that help expand your geographical presence more highly than those that do not. Use tools such as the Opportunity Matrix or Weighted Criteria or even a simple pro-con list to help you objectively sort through the possibilities and organize your thoughts. These tools will also give you the confidence that you are selecting the best and most important ideas for growing your business.

3. Get focused.

Without clear focus it’s difficult to move forward. If you’re all over the map, you won’t apply the time and resources needed to grow. Rather than diluting your efforts develop a plan focused on one goal and concentrate mostly on that. You can always modify your plan as time passes and your goals change.

4. Execute your plan.

As Nike puts it, “Just do it!” There comes a time when you need to move from thought to action. If you’ve done the upfront work on planning your growth strategy, don’t be afraid to pull the trigger.

By following these steps you’ll identify the ideas that will help you create a pathway for growth.

Learn how to find the best companies for acquisition in Capstone’s webinar on November 20. For over twenty years I’ve helped clients pick top-notch companies using a unique demand-driven approach.

It begins with formulating a strategy and using research to select the top markets for growth.  Then, we search for the companies that meet your strategic needs in those high-growth markets. During this webinar, I will show you how to approach the search for the right company systematically and efficiently using effective research methods.

After completing this webinar, you will be able to:

  • Approach the search for the right acquisition prospect systematically
  • Understand effective research methods for identifying prospects
  • Develop criteria for your ideal acquisition prospect
  • Use tools for objective decision-making during the acquisition process

Date: Thursday, November 20, 2014
Time: 1:00 – 2:15 pm ET

CPE credit is available.


Pursuing M&A is a passionate process. Emotions run the gambit from excitement in finding a new deal to anxiety about risks uncovered during the acquisition.

I’ve found due diligence and negotiations to be among the most stressful times during mergers and acquisitions. Here are six ways to help everyone keep their cool during these critical stages.

  1. Write everything down – I cannot stress this enough! Nothing is more frustrating than coming to an agreement only to forget the exact terms. By recording your agreements, you can avoid renegotiating key elements of the deal. It’s hard enough to come to one agreement in the first place, much less two.
  2. Get organized – Have a member of your acquisition team act as the “librarian.” This extremely detail-oriented person will keep track of the large amount of data you receive and carefully organize and catalogue it so that it’s readily accessible when needed.
  3. Gather your questions – There is no need to call or send emails with every question; you don’t want to kill the seller with paper cuts. Collect all your questions together and present them at one time. This will also help your librarian manage all the information gathered during due diligence.
  4. Apply your criteria – Go back to the basics. Use your strategic criteria and objective metrics to calm emotions, help resolve any differences of opinion on your own team and promote meaningful analysis rather than heated debate.
  5. Use a third-party advisor – Your advisor can act as a “lightning rod” when communication between you and the seller is strained. The seller will likely feel more comfortable sharing their concerns with the advisor rather than with someone who might be their future boss. Your advisor can help ease any fears and clear the air while protecting your relationship with the seller.
  6. Have options – Last but not least, have more than one option. We recommend our clients be in serious talks with at least three other acquisition prospects and have many more in the pipeline. This way you won’t feel trapped or pressured into making a deal if you uncover any red flags.

While these tips won’t eliminate all stress from due diligence, hopefully they will help you and the seller through to a successful conclusion.

Photo Credit: Amy McTigue via Compfight cc

Acquiring the right company is the key to acquisition success. Your target should fit into your company’s overall strategic vision and add value to your business.

To determine what this company looks like and to find it, develop prospect criteria. Keeping in mind your business strategy, sit down with your acquisition team and write your description of the perfect acquisition target company. Use criteria and metrics to describe the ideal candidate. Try to limit your criteria to no more than six, focusing on strategic aspects.

For example, your criteria could include “strong management experience,” with “executive team in place for at least five years” as your metric. It’s very important to include objective and measurable metrics because these criteria will be used for evaluating actual companies.

An objective system lets you evaluate and prioritize your prospects. While reality may never match your ideal, this exercise will yield a very effective list of criteria for your search.

*This post was adapted from David Braun’s Successful Acquisitions, available at

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As I head off to celebrate July 4th with my family and friends, I’m reminded of what we call “brother-in-law” companies.  In some ways, the close relationship between family members can resemble the relationship between a buyer and an acquisition prospect.

These “brother-in-law companies” are prospects that a CEO believes are a great deal because he or she has access to a special information source (such as a brother-in law inside the organization.) While being close to your family is a good thing, it does make objective judgment challenging. In the same way, the CEO may have difficulty remaining unbiased when researching “brother-in-law” companies.

Using objective criteria can help. When we research companies like this, we often find them less desirable than our client believes. By applying rigorous and systematic research to the prospect criteria, we may determine that despite the “inside” information, the target companies may not be such a great fit.

*This post was adapted from David Braun’s Successful Acquisitions, available at

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As a consultant, I frequently hear the question, “How do I find good acquisition prospects?” Executives can be overwhelmed by the number and variety of potential companies.  It can be challenging to prioritize your search.

This month, I will be leading a webinar “Discovering Prospects” on Thursday, March 21 at 1:00 pm EDT.  I will cover how to effectively set criteria and conduct research to discover acquisition prospects that fit with your acquisition strategy.

When we speak about discovering prospects, we need to remember the importance of first defining the appropriate market. The “markets first” approach sets the optimum context for reviewing and selecting viable prospect companies.

You can register for the webinar here.

I’ll speak for about an hour, followed by a question-and-answer session. Come prepared with questions to ask. You can also submit questions in advance when you register for the webinar.



Photo Credit: buba69 via Compfight cc

As I’ve stressed  in an earlier post, I recommend including not-for-sale companies in your acquisition search. This will significantly expand your universe of potential acquisition prospects. However, with such a large pool, you must develop criteria through which to filter the prospects in order to narrow your options.

The first step in establishing your criteria for prospects is to review your long-term strategy, taking into consideration each fundamental aspect of your business: marketing, production, distribution, management, sales, accounting, etc. Your acquisition criteria should take each of these core functions into account.

Criteria become an objective touch point for you throughout the entire acquisition process. When you reach an impasse in the decision-making process, you should return to your criteria. There are no ‘‘right’’ or ‘‘wrong’’ criteria. They are simply whatever you value in a market or company to address your one reason for growth.

Taking time to identify and prioritize your criteria is one of the key tasks of your acquisition team, and this must be completed thoroughly early in your growth process.

*This post was adapted from David Braun’s Successful Acquisition, available at