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How to identify an acquisition target?

 

Posted on 11 February 2016

At a time when M&A in the UK is buoyant, I have been asked by a number of owner managers “how do I identify an acquisition target?” It is a simple process but it takes time – you need to research, research, and research (unless you appoint an advisor to support you on it!).      

The first step is to establish your acquisition criteria and then the second step is to start the research.  These steps are discussed below:

Setting your acquisition criteria

The first step to finding a target is to know what you are after. This is fundamental. If you can define what type of acquisition you are seeking you can narrow down the field to select from.  Challenge yourself to fundamentally understand what will enhance your business:

  • New services
  • Specific customers
  • Geographical expansion
  • Capacity
  • Access to people
  • New markets
  • Size/scale (infill)

In this analysis you need to be balanced, if you go too wide you might not find the right partner.

If you go too specific you might never find what you are looking for. Take time to understand these fundamentals and the identification of targets becomes much easier as you know what you are looking for. You can then move to the next phase.

Researching potential targets

The strategy on this depends on whether you want to approach companies directly or to be approached by companies that are for sale. My view is that most acquisition searches should include both.  

Approaching companies direct

Whilst a company is not on the market it does not mean it is not for sale “everything is for sale”. So an effective route to making an acquisition is to create a target list to then approach. Now you know you acquisition criteria you can focus your search on those areas.  If you don’t already know of potential targets this can take time to research. There is significant amount of information online and the typical areas to look at include:

  • Companies House Direct
  • Trade bodies (as they list out members)
  • General web searches  
  • Company websites

You can also explore your network and attend trade shows which may provide you with suggestions on potential targets. Researching and defining the list can take time, but once you have it you can then start to make direct enquiries.

Companies that being sold

Identifying businesses that have been put up for sale is much more difficult. Most companies want a sale to be conducted privately and confidentially. It is not like the estate agency market.  As such there is no ready-made website that you can search to ensure you see everything in the market. You are therefore reliant on your own public profile and professional network. A smart move could be to make regular press announcements that you are seeking an acquisition and you have the funds to do so. The local press are very supportive of positive local news stories and tend to promote these type of articles.  This type of exposure is likely to feature on national M&A databases and should feature on advisor radars. That way you increase the chances of you receiving enquiries from advisors that have companies for sale. 

Additionally you should speak to a corporate finance advisor and your wider professional network.  They might have additional intelligence that can support you.  

In my opinion it is more difficult to find out about live process than to approach a company direct. The direct route might mean you need to kiss a lot of frogs but it is more likely to result in the right acquisition for you. 

Final thoughts

If you are really serious about acquisitions the most obvious starting point is to appoint a corporate finance advisor to support you. This will avoid you having to spend time researching.  An advisor is likely to have access to a wealth of databases that are not available publically – and can expedite the process for you.

At Smith Cooper we assist our clients through undertaking the research on their behalf and by accessing our specialist knowledge including:

  • Analysing our national databases of limited companies (full UK coverage and public data for overseas companies) – including, to the extent available, business descriptions, financial performance, employee numbers, age of shareholders etc;
  • Analysing our deals database being a collation of all businesses for sale that we are aware of; this is developed from our extensive network of professionals;
  • Accessing specialist M&A forums and databases that share market intelligence on business for sale; and
  • Contacting our network of over 3,000 advisors to highlight your acquisition criteria.  This can be conducted on a confidential basis.      

This level of intelligence can really accelerate your acquisition plans and save you a significant amount of time.   However, the real trick is “how to unlock an acquisition opportunity” which is a whole different story...

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