Successful Buy Side Mergers And Acquisition Search

Successful Buy Side Mergers And Acquisition Search

Successful Buy Side Mergers And Acquisition Search, Last Modified, 2017-05-08

For your reference, we'll speak to one important investment criterion mentioned above
acquisition size.

Our clients are typically middle-market companies that have revenues ranging from $100 million to $1 billion per year. The size of acquisitions can vary widely, but as a point of reference, our clients have been comfortable acquiring companies that are roughly 10% of their size. So a company with $200 million in revenue would be very comfortable buying a company with $20 million in revenue.

While this benchmark can easily range from 5% to 15% of revenue, we don't often see middle-market companies acquire targets over 25% of revenue. On the low end of the scale, our clients typically don't like to acquire companies with revenue less than about $5 million. There is a baseline fixed cost to doing acquisitions in terms of both out-of-pocket expenses and internal bandwidth, so relatively small acquisitions can be very
difficult to justify.

After answering the questions above, you should have some sense for whether or not your investment criteria match up with a high probability of success. For instance, if you believe that there are only 10 companies that meet your acquisition criteria, and you hope to close one
acquisition per year for the next five years, then there is a disconnect between your aspirations
and reality.

Conversely, if you believe there are more than 50 companies that could potentially meet your criteria, and your goal is one acquisition per year for the next five years, you may have a viable path forward. Note that in both of these examples we focus on the number of potential acquisition targets. In the end, a successful strategic acquisition search and execution strategy depends on the laws of probability and the strategic quality of the targets.

That being said, rules of probability still apply. Some targets will be perfect, but not for sale. Other targets will be open to a sale, but won't quite meet your investment criteria. Other targets will be interested in talking with you, but ultimately the timing won't be quite right. A few targets will meet your investment criteria and will be open to the idea of a sale.

This concept of probability is also why we mentioned above that the key to strategic acquisition search is to seek out highly synergistic and strategic targets, so that the seller fully understands why you would want to acquire their company. This is important when you begin making calls to prospective targets these are business owners who get a dozen calls a month from callers who purport to represent an unidentified buyer with a lot of cash.

If you want the odds in your favour, the target seller needs to understand your strategic rationale.

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