Whether you are a seasoned campaigner in the world of M&A or you are brand-new to the acquisition process, one of the most important parts of the M&A journey is being able to identify the best acquisition prospects. But how do you go about this? What are the best methods to use to sort and evaluate potential targets?
We’re about to answer those very questions in this article, providing you with plenty of helpful insider tips and tricks on how to identify and approach acquisition targets that will most suit your profile – regardless of what sector you’re choosing to invest in.
Let’s start by scrutinising the qualities that make a target stand out from the crowd and signal a potentially valuable investment opportunity.
Desirable qualities in an acquisition target
Whether you’re keen to buy a fire safety business or invest in a landscape gardening enterprise, there are some universal qualities that make certain targets particularly attractive. These qualities include:
1. Robust finances
The most obvious attribute to focus on is a prospect’s state of financial health. To help you gauge this, there are several key metrics to pore over: their turnover, their EBITDA, their FCF, their revenue growth rate, and their EPS (earnings per share), to name a few.
By analysing these metrics and collating your findings, you can build up a solid picture of a target’s financial stability and their potential for further growth. Targets that can display a steadily growing turnover, EPS and EBITDA, as well as positive free cash flow, are obviously going to be the most attractive candidates for investment.
2. Valuable products or services
Another sought-after quality of an acquisition target is the high value of its intellectual property, or a certain product or service that is in consistently high demand and offers attractive USPs.
M&A prospects that have a track record of providing innovative and popular services or products will, of course, be sought after, whatever market sector they occupy.
3. Firm market foothold
Another quality to analyse is a company’s current market share and how it’s faring against its competitors.
Targets with a robust footing in their sector offer several significant advantages to would-be acquirers, including a ready-made customer base, strong supply chains, and an established brand with the ability to see off its competitors and maintain a consistent growth trajectory.
4. Value-boosting synergies
Last but by no means least, there are synergies to consider between you and your potential target.
Purchasing a business that offers products or services complementary to your own is the ideal way to unlock new value-enhancing opportunities, for example, via cross-selling. However, synergies can come in other forms too, such as cost efficiencies gained by optimising operations, sharing employees and facilities, and reducing redundancies.
You can also unlock new value-enhancing opportunities by acquiring a business with a complementary corporate culture and a strong brand which will boost awareness and engagement with your own.
Choosing the right acquisition for you
Now you have some prime targets in mind for your next acquisition, it’s time to think about the type of acquisition that is most suitable for you and your target.
Depending on the circumstances and what you want to achieve, you may want to opt for an asset acquisition or a shares acquisition.
Asset acquisitions
If you want to err on the side of caution with your acquisition or you are only interested in specific aspects of a target, then you might wish to go down the asset acquisition route.
As the name suggests, this involves purchasing some of the company’s assets. In the process, you may also take on some of their liabilities, but this is not automatic, and you can decide which liabilities you take on.
A notable benefit of an asset acquisition is the flexibility it provides potential buyers. It also tends to be a more straightforward and swift option, as the shareholders of the seller’s business may not necessarily be required to sign off on your purchase. The due diligence process also need not be as lengthy, due to the lack of liabilities involved.
Share acquisitions
In the simplest terms, when you opt for a share acquisition, you are buying the seller’s business outright and taking over their shares in the business. At the same time, you will be taking on any liabilities, as well as all the other responsibilities tied to the ownership role.
This option may be preferable for buyers who want full control of their new purchase. However, it also comes with more complexities and potential risks, so you will need to proceed with caution as you embark on the acquisition process. Stringent due diligence will be key, and you’ll also need to negotiate warranties
How to approach your targets
If you are new to M&A and you’re wondering how to approach acquisition targets, there are a couple of methods to consider. These include:
- Cold outreach
Your first option is to reach out yourself to businesses you are interested in, to gauge their feelings about a potential acquisition by your company. This can be done via a phone call, an email message, or even their LinkedIn.
This can be a simple but effective way of initiating an acquisition; however, it can also be time-consuming and frustrating at times, particularly if you don’t get a response from an attractive target.
- Hire a business broker
Your other option is to hire a business broker to locate and verify desirable targets on your behalf. Business brokers have plenty of experience in reaching out to acquisition prospects and bringing together buyers and sellers, with the help of their vast network of contacts spanning every sector.
What’s more, if you hire the comprehensive services of a business broker, their assistance won’t stop there – they can go on to oversee the entire transaction on your behalf, from valuation to due diligence and deal completion. Having this expert support can really streamline the M&A process and save you significant time and effort, not to mention stress.
Harris Acquire, at your service
Can’t wait to get the ball rolling on your acquisition? Why not give our friendly and highly experienced team a call and let us kickstart the M&A process on your behalf?
We can provide you with a tailored, trustworthy and results-driven approach that will maximise the efficiency and value of your deal and help you achieve your expansion goals in 2025 and beyond.
You can even take advantage of our exclusive Acquisition Finder pilot, which includes a 30-day money-back guarantee for your peace of mind. Give us a call on 01926 757100 or send an email to Hello@harrisacquire.com to find out more!
