Developing an M&A Strategy and Selecting Targets

Business growth can be achieved in a variety of ways

  • Organic expansion through marketing and business development is the most conventional option, but takes time
  • Growing organically in overseas markets is challenging where local customs, rules and regulations may not be fully understood
  • Often, a quicker option is to invest in or buy a business operating in the market

Corporate strategy makes the company greater than the sum of its business units

  • Set out the companies direction and goals, core competencies and limitations, portfolio of assets, map resource allocation, growth plans
  • Rigorous analysis enables management to understand internal strengths and external market conditions, both in the home country and overseas
  • This exercise allows executive management to develop a set of options, such as an acquisition or a sale, to achieve their long term objectives

As challenges and opportunities for growth are defined, options to defend, grow, fix or exit can be assessed and prioritised based on the company’s goals, capabilities and financial position

Management can choose from multiple strategic objectives such as:

  • Profitable growth: increase business breadth or depth through revenue growth, market share capture, margin enhancement or improved asset utilisation
  • Skill strengthening: acquire new talent to remain competitive
  • Portfolio management: buy/sell to optimise a portfolio of companies
  • Defensive action: ward off potential take-over attempts
  • Opportunistic posture: capitalise on a unique market opportunity
  • Globalisation: expand internationally to take market share and grow shares

Once the management team has decided that an acquisition fits with its wider corporate strategy, the next phase is to identify potential targets, synergy opportunities and to arrive at a valuation range

  • Developing a pool of targets
  • Understand the industry structure and leverage points where value can be captured
  • Analyse the market size and key growth drivers
  • Map out the key market players and competitive landscape
  • Review technological trends and developments in the industry
  • Identify any barriers to entry for new comers to the market

Develop the initial long list of candidates

  • High level search based on size, location, sector, market positioning
  • Likely to be 100 or more companies in some cases
  • Further screening and profiling of each
  • Sourcing potential acquisition candidates
  • Finding the right candidate requires time and patience
  • Internal desktop analysis combined with your network and industry contacts
  • Financial analysis of targets may highlight candidates with cash shortages or excessive debt to clear that might prompt a sale
  • Study shareholders and management – owners nearing retirement with no heirs in place, financial investors interested in cashing in




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