Ideal Acquisitions Start With an Effective Evaluation Plan
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In this buyer-beware market economy, it is more important than ever for business owners to make calculated decisions when researching companies to acquire. An economic lull can be an ideal time to purchase a business; however it also makes it more critical to conduct due diligence to determine why a business is for sale and whether the acquisition would be beneficial in the long run.
The Merger & Acquisition Services Center of Expertise of Jefferson Wells, a global provider of internal audit, technology risk, tax and finance and accounting-related services, has developed a checklist of 10 questions that companies can use as a guideline to help dissect high-level growth strategies and identify ideal acquisition target opportunities.
“By defining and prioritizing the key motivators, business owners can further develop criteria for acquisition targeting. An effective acquisition evaluation and execution strategy will ensure the ideal acquisition is made,” according to Richard Quinlan, global director of merger and acquisition services for Jefferson Wells. “In the event of a divestiture, many of the same questions can be asked about a division or plant within a company, and the answers will aid in the decision to sell.”
The checklist will help determine if it is in the company’s best interest to acquire a business, and if so, which business in the interest pool would provide the most synergistic relationship. The more “yes” responses, the more beneficial the outcome will be. Fewer “yes” responses will put a possible acquisition into perspective, revealing that moving forward could do more harm than good.
10 Key Motivators to Acquire a Business
Will the company gain a new technology, product or process?
If a new product line is acquired, will it complement current products?
Will the company expand its geographic presence to better serve customers?
Is there an opportunity to enhance operational excellence?
Will the company gain ownership of sought-after equipment?
Will the company be able to strengthen the management team or overall culture?
Do cost-cutting opportunities exist?
Will the opportunity provide the company with a defensive strategy for competitors?
Is there a specific customer request to purchase a business or locate in a given geography?
Is there an industry-specific need to purchase a business, whether strategic, regulatory or trade-related?
It may be tempting to buy a business if the perceived quality is high and the sticker price is low, but if the business is hard to fold into the existing company, aggressive organic growth may be a better option. When looking to efficiently evaluate target businesses to acquire, Quinlan says the key to developing a plan that ensures acquisitions are aligned with strategic visions is knowing what the company should be looking for and having the right team in place to quickly evaluate prospective targets.
