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

Not finding the right company to acquire is the top challenge for middle market companies seeking to grow through mergers and acquisitions. According to Capstone’s survey of middle market executives, 28% noted lack of suitable companies as the strongest reason for not considering acquisitions as a tool for growth.

Finding the right company to acquire is critical to the success of a deal, especially for strategic acquirers who plan to hold onto the newly acquired business long-term.

The lack of targets may be because most leaders are only focusing on for-sale companies. Many wrongly assume that if an owner is not actively seeking a buyer, a there is no chance for a deal. This is simply not the case. Once you begin to consider not-for-sale acquisitions, the universe of options expands.

Pursuing not for-sale acquisitions allows you to take charge of your acquisition strategy and seek out the best companies to acquire rather than accepting whatever opportunity happens to come your way.

For many I realize the idea of pursuing not-for-sale deals can be intimidating, and many assume that if an owner is not actively selling their company that there is no chance for acquisition. This is simply not true. While searching for and approaching companies that aren’t seeking buyers requires a different approach, and more effort, than reacting to whatever happens to be for sale, there are some tricks to approaching these owners.

Finding an Owner’s “Hot Buttons”

One of these best practices is to find the owner’s “hot buttons” to determine what the right equation will be for them to consider selling. A “hot button” is any issue an owner would insist on addressing if they were to sell the company. Price might be one such “hot button” but it’s unlikely to be the only one. The owner may love his or her work, in which holding a position after the acquisition would be a priority. There may be a succession issue if the owner has family members in the company they want to take care of. The owner could have longstanding ties to the community—or may even be the biggest employer in town—and would want to ensure the business stays in the area.

Being informed about these “hot button” issues, and handling them sensitively, opens up the whole field of so-called “not-for-sale” companies.  Now, as you develop your acquisition strategy, you have far more choices, and much better chance of finding the company that truly matches your over-riding strategic goal.

Because approaching “not-for-sale” owners takes great skill, it often it makes sense to hire a third party expert who has experience in this work and is not perceived as any kind of competitive threat by the owner.  Your acquisition advisor can also help you tease out the precise equation that would prompt the owner to sell.

For more insights on middle market M&A, download our report State of Middle Market M&A 2017.

Photo credit: Kate Ter Haar via Flickr cc

Finding a list of companies to acquire is exciting! You start thinking about all the possibilities and how the deal will grow your business exponentially. But before you move forward with any of these candidates, take a step back and make sure you are looking at companies in the right markets.

What are the “right markets?” Markets that have a healthy, stable demand and are growing. After all the primary driver for acquisitions is to help your company grow. Without researching markets first, you risk acquiring a company in a stagnant or declining market. Although the company may have strong financials today, if there’s no demand in the marketplace, your acquisition won’t deliver the expected returns on growth in the future. Without first selecting a market, you have reason to beware of even the most tempting buying opportunities.

Finding the right market begins by defining the market using geography, verticals or another relevant factor, and by developing market criteria to aid in your decision-making. Your research will begin with a broad sweep and become progressively narrower as you learn more about the market.  Your market criteria will help you objectively evaluate and compare the markets against your strategic rationale for acquisition.

Researching markets first not only helps you avoid acquiring a bad company, it helps you identify the best companies to buy. By conducting market research, you will gain a better understanding of the market, which will help you evaluate acquisition prospects and negotiate with owners as you proceed with the acquisition process.

Learn more about the “markets first” approach in our upcoming webinar How to Pick Top-Notch Markets.

After this webinar you will be able to:

  • Understand the market-driven process
  • Explain market criteria (market growth and size, competitive dynamics, barriers to entry) and how to use them to evaluate a market or segment
  • Describe effective secondary & primary market research techniques
  • Explain the triangulation technique to obtain the most relevant information for accurate decision-making
  • Develop tools to objectively compare and contrast markets

How to Pick Top-Notch Markets

Date: Thursday, February 23, 2017

Time: 1:00 PM – 2:00 PM EST

CPE credit is available,

Photo Credit: Paul Benson 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

When contacting an owner about acquisitions, don’t be surprised to hear “no.” Most owners, when asked about selling their “not-for-sale” business will automatically refuse simply because it’s unexpected. Remember, for an owner focused on running the day-to-day operations of his business, this offer is coming out of the blue. There are, of course, a number of other reasons why owners don’t want to sell including history, age, family, and community. Don’t be afraid of rejection or give up after the first try. If you are persistent, you may find the owner is open to at least talking to you or meeting with you to hear you out.

However, in some cases, despite your determination, you may find that the owner still is not interested in selling or any type of partnership. So what do you do? Do you keep calling him or do you give up?

When contacting an owner about selling his “not-for-sale” business you must be persistent, but not obnoxious. It’s important to strike the right balance. If you’re at an impasse with an owner who is not budging on his “not-for-sale” position, there are a few strategies you can employ.

Write the Owner a Letter

If the owner is still refusing to meet with you after multiple phone calls, try taking the conversation from verbal to written. In a letter, you don’t seem as pushy and the owner has more time to think through his response rather than react in the moment.

Stay in Touch

If the owner still seems uninterested after a letter, put him on a keep in contact list. We have a list of prospects that we call every quarter to check in and see if anything has changed since we last spoke to them.  A big part of acquisitions is timing and an owner who is not ready to sell today, may be ready six months down the road. When something changes in his business and the switch flips, he may pick up the phone and call you. While there’s no guarantee that the owner will sell, at least if you made the initial approach, when he is are ready, you will be at the top of the list as a potential buyer.

Move on

If you’ve tried both of the strategies listed above and still have not had any success, it may be time to move onto another prospect. You shouldn’t keep beating a dead horse and some owners are really not going to sell their business no matter what.

If you have a robust pipeline of acquisition prospects that you are pursuing in parallel, this won’t be a major setback to your acquisition program. With many options you increase your chances of a successful acquisition.

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.

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

Strategic mergers and acquisitions can be a powerful tool for growing your CUSO, but much of your success depends on finding the right partner. How can you identify the right partner for growth?

The best way to begin your search is to identify the ideal markets in which to grow your organization. Once you have researched and selected the top markets for growth, you can begin searching for potential partners in that market that will help your CUSO grow!

Capstone is excited to be partnering with the National Association of Credit Union Service Organizations (NACUSO) for an exciting webinar. NACUSO helps credit unions explore the use of CUSOs and the delivery of non-traditional products and services.

In this webinar, led by John Dearing, Managing Director of Capstone, you will learn how to use a demand-driven approach to search for the right partner systematically and efficiently. John has led a successful acquisition program for nearly twenty years, including over ten years of helping CUSOs grow through external growth and M&A.

Date: February 16, 2016

Time: 12:30 – 1:30 PM ET

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.

Subscribe to the blog.

How do you go about finding companies to buy? Do you begin your search by contacting a list of usual suspects? Rather than falling back on the usual suspects, consider using a truly strategic approach to finding the right company to buy. A demand-driven approach to picking acquisition targets will help increase your chances of successful M&A.

Join me for the second videocast in the new Capstone series, M&A Express: “Where to Start Your Search.”

You’ll learn how to look beyond the “deal” to consider long-term market forces that can make or break the success of your acquisition.

Where to Start Your Search

April 9th, 1:00 PM ET

Register here — it’s free

The information in this videocast can make the difference between a successful acquisition…. and a disaster.

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.

See you on April 9!

Learn more about M&A Express.

Subscribe to the blog.

When you’re pursuing an acquisition, making meaningful connections with the right people at the right companies can be challenging.

Who is the right person to contact? How can you go about contacting them? And once you do get in contact, what do you talk about to capture their interest?

These questions are I frequently hear from company executives.

One client of ours received no response after contacting both the owner and the CEO of an acquisition target about a potential partnership. He put it this way: “We have our people talking to the same ten key contacts, but there’s little to show for all our efforts.”

While he knew the right person to speak with, he was still unable to open the door to begin a meaningful dialogue. It’s not enough to know the players; you have to understand how to approach them and how to keep them interested. Here are three common questions we hear and three answers to help you with your contact strategy.

1) Who is the right person to contact?

Typically in a privately held, not-for-sale acquisition you’ll want to contact the owner or owners of the company. You might also contact the company CEO, president or another executive. Usually this information is listed on the company’s website or some secondary source of information. But first, do some primary research with lower-level employees in sales or operations without disclosing your interest in acquisition. They can provide you with additional insights into the company so that you’re fully educated and prepared when speaking with the owner.

2) Why haven’t they called me back?

Was it something you said? Maybe. Or maybe they never received your letter or email. Unfortunately you may never know why they didn’t respond. This is why I recommend calling instead of sending a letter. It’s a lot easier to get feedback from a live dialogue and to gain deeper insights. You’ll at least know they heard your message through all the clutter.  This is also a great reason for having multiple target companies… there’s bound to be a percentage of owners who never respond to your invitations.

 3) How do you keep the target interested?

Your goal during a first call is to draw the owner of an acquisition target into a conversation. Don’t try to get them to sell their company over the phone – no one is going to do that! Instead keep them on the phone by demonstrating your knowledge of their company and business and your strategic vision for a partnership (whether that be 100 percent acquisition, joint venture, strategic alliance, or minority investment).

Our clients find that they may have trouble opening doors with the correct people, even if they are familiar with many of the players in their space. These tips should help, but speaking with owners does require a certain amount of expertise and practice. Even after 20 years of experience, we still hear the word “no” on occasion. Each contact you make with an owner is a link in the chain that could lead to a prosperous acquisition. Don’t ruin your chances for a successful acquisition by making preventable mistakes. Make sure you’re prepared.

You can learn more about contacting owners in our upcoming webinar: “The First Date”: Contacting Owners and Successful First Meetings.

Photo Credit: bachmont via Flickr cc

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
Registerhttps://www3.gotomeeting.com/register/479774158

CPE credit is available.

 

“Insanity,” Albert Einstein said, “is doing the same thing over and over again and expecting a different result.”

An executive once told me he unsuccessfully had been trying to grow his company through acquisition for the past five years. For one reason or another, the acquisition candidates brought to him weren’t right. Either they didn’t fit strategically or he couldn’t reach agreement with the owners.

Looking closer, I discovered one reason for this failure to execute: He had only considered the “usual suspects” as acquisition candidates. “The usual suspects” are any companies that are already known to you, for example any suppliers, competitors, or industry partners you already have a relationship with. These are the names that you think of off the top of your head.

While there’s nothing wrong with looking at such companies as acquisition prospects, other means of identifying prospects include market research, trade associations and trade shows, internal input from your employees, and for-sale companies.

There are many way to identify prospects for acquisition.

The Prospect Pipeline: There are many way to identify prospects.

If you find yourself in a similar situation as the executive, unable to complete an acquisition after five years with your list of companies, it may time to move on and identify new prospects.

Consider looking at new sources to help find fresh acquisition targets. Although turning to the “usual suspects” is natural and the easiest option, it ignores a whole host of companies that could be strategically valuable acquisitions. Searching for companies through other avenues can help identify opportunities and maximize your chances of success.

Buying a company is not like buying a car where you walk away and never see the seller again. In many cases, it is more like buying an automobile with the seller thrown in. Especially for strategic acquirers, key employees from both buyer and seller are likely to work alongside one another in the newly merged company for years to come.

This presents a challenge to how we might typically negotiate. Hard-nosed tactics rarely serve either buyer or seller well in the long run. When negotiating during M&A we must carefully balance assertion with compromise.

Join me for a webinar on “Successful Negotiation Tactics” on March 20. I will explain best practices for negotiating based on my experience negotiating for mergers and acquisitions. Learn how to effectively negotiate for what you want without burning any bridges in the process.

Webinar topics include:

  • How to build a negotiation platform
  • Effective tactics for getting what you want in a deal while protecting the relationship with the prospect
  • How and when to bring legal counsel to the negotiating table
  • Strategies to address Terms, Timing and Talent
  • Methods for broaching the issue of price
  • How to avoid negotiation in circles

Date: March 20, 2014
Time: 1:00 pm ET
Click here to register

Photo Credit: paul bica via Compfight cc

“Keep your pipeline full,” I often tell clients when speaking about their acquisition prospects. By this I mean that in pursuing M&A you should research 75 to 100 companies. That’s a lot of companies and research, which of course you must record in an appropriate manner.

How can you keep track of all your data? What member of your acquisition team is best qualified to monitor, control, and update the pipeline database?

The short answer is someone who is extremely detail-oriented and organized. Think of this person as the M&A librarian. I recommend the librarian is not the acquisition champion because this role will require a fair amount of work. The librarian will meticulously keep track of all the information gathered by the acquisition team and catalogue it appropriately.

My clients often use tools such as Microsoft Access, Salesforce, Act!, or other data management software to organize all the data. Recording your findings in an orderly, accessible fashion is critical to ensuring your data is useful and meaningful to you during the acquisition process.

Photo Credit: boltron- via Compfight cc

Many executives engaged in M&A believe in creating a long list of acquisition prospects. However, the goal of your M&A process should be to find the right companies. Obviously, it’s good to fill your pipeline with prospects, but you want to be sure these prospects match your strategic criteria. What good is a long list if none of the companies fit your strategic vision?

Learn more about this strategic approach to building your target list at our next Capstone webinar “Finding the Right Companies” on Thursday, November 21. The webinar will explain the most effective methods for identifying prospects that match your M&A strategy.

Click here to register.

CPE credit is available.

By John Dearing, Managing Director

McKinsey & Company recently published an article on using M&A as a tool to give your company a competitive advantage. The article addresses some key aspects of M&A we find important at Capstone. You should develop your strategy first when approaching M&A and always have a full pipeline of acquisition prospects so you can compare and contrast for better decisions. Ultimately, you need an M&A process in place if you seek success.

Photo Credit: Victor1558 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 Amazon.com

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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 Amazon.com

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I was on a call with a prospective client when he asked a question I frequently hear: “Will we get a list of companies we can look at to acquire?” It’s a common misconception that your objective in hiring an M&A consultant is a long list of for-sale acquisition prospects.

I strongly caution against this approach. Too often business leaders listen to whoever comes to lunch, size up whatever opportunity comes across their desk, and then get caught in the lure of the most appetizing deal. The longest list of for-sale companies may not include a single one which truly matches your strategic vision.

Acquiring the wrong company is an expensive mistake.

A few years ago, my firm had a client in the health services industry that was persuaded to acquire a manufacturer of nurses’ uniforms that happened to be for sale. The target company was losing money, but the CEO was persuaded that she could easily turn it around and generate a profit. Twelve months later, the acquisition had become a disaster. Our client had inherited a lawsuit, serious absence of sales aggressiveness and unexpected trade restriction. What was missing can be summed up in one word: strategy. We encouraged our client to adopt a strategic approach.

Generating a list of companies may seem like the correct approach, but ultimately your goal is to successfully acquire one company that meets a specific strategic need. Finding the right company that fits with your growth strategy means first of all knowing what that strategy is. Then you go in search of exactly the prospects that match your goals, without regard for who is, or is not, “for sale.” The reason? As I’ve often noted in this blog: every company is for sale for the right equation.

The strategic approach to acquisition takes time, skill and thorough research. And yet it gives you the fastest track to a profitable result.

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

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