Key Factors to Consider When Identifying Potential Acquisition Targets
There are many firms which can help you with the process of finding acquisition targets with detailed market analysis and analytics software, so that you find those which align with your strategic goals.
Set rules ahead of target screening and early engagements will prevent bias and allow for an equal comparison among applicants, especially important when determining revenue quality and culture of target.
Financial Strength
Finance is one of the first things to remember when looking for acquisition candidates. This is by determining their revenue and profit margins, market viability and if their capital will sustain the goals long-term.
During due diligence you should also analyze cash flow as well as it’ll tell you how much capital a company has to expand in the future and whether they’re just working with a few major customers to bring in sales. Last but not least evaluate their management team to keep them growing and operating profitably after the acquisition.
Competitive Strength
As part of an M&A transaction, companies often do a competitive analysis. — This is a test where you evaluate acquisition candidates on certain metrics that relate to business objectives and growth plans – good financial condition, complementary business models, and strong long-term growth potential are a few of the things that could be compared with acquisition candidates.
The competitive strength of a company comes down to its market position, a measure of how strong a firm is in the marketplace and how good it is at retaining and acquiring customers. A check can also include factors such as customer segmentation or the kinds of activities or specialties that it provides.
An organization’s liquidity can be assessed by EPS (earnings per share). High EPS can be used to indicate that the stock creates a high amount of economic value and gets investors to invest capital in it and can also be calculated by using price-earnings ratio where share price is divided by EPS.
Complementary Business Model
Set the acquisition parameters which will help you to find the targets that will be suitable for your business objective such as product, market, technology or geographical region your company want to acquire.
Beyond just their liquidity, a target should also be evaluated on their fit with your business model and culture. Note whether they are operating in a way where their revenue model, cost model and technology matches those of yours.
Finding matching attributes to acquirers could optimize your operations and lower your costs e.g if you have no stores, acquiring a competitor that has stores can offer new revenue streams. Also, look at the potential for value to be added by the acquisition in terms of synergies that will increase productivity or decrease cost; this is a huge value added source from an acquisition: companies with competitive advantages can benefit from acquisition in order to increase market share or build brand loyalty.
Long-Term Growth Prospects
Long term growth potential when picking acquisition candidates. Find companies that are growing steadily and with positive profit margins, but can expand to other markets or sectors.
A good acquirer must also have a complementary business model that can be cross-sold and align with your current business. If, for instance, your firm sells software to small businesses but doesn’t have a physical store, then buying an alternative company that offers a similar product could be a second source of revenue.
Recruiting acquisition candidates is a tiring task, but with smart foresight and an AI-powered M&A sourcing tool like Cyndx it can be a breeze. If you can identify candidates who best align with your organization goals you can discover candidates suitable for acquisition.
