According to my experience, there is only one formula for selecting acquisition targets successfully. It is the business strategy: each merger or acquisition must have its business growth objective.
I always ask about the growth strategy when a company signals interest in buying another company or part of it. If the answer is that management has evaluated the merger and acquisition as an option and has concluded that a specific purchase is the best way to grow, M&A makes sense.
Typically, M&A actualizes when a company changes strategy or accelerates strategy execution. The most successful deals I have made have a well-defined growth strategy guiding the acquisition process. Of course, a professionally managed integration process is a must.
Growth-generating merger or acquisition
The rationale for a strategic merger or acquisition that creates real growth is most often one of the following:
- Increasing the economy of scale by consolidating the marketplace (especially when fragmented)
- Strengthening or extending current product or services offering
- Filling in a gap in competence or resources faster than by growing organically
- Obtaining innovations
- Obtaining new customers for existing or new products, solutions or services
- Increasing market share to be a credible player in the market
- Expanding geographically to new markets (often cheaper than starting from scratch)
- Buying out a competitor from the market
- Strengthening or extending a current product or service offering
- Increasing shareholder value
- Acquiring patents and intellectual property rights
The way to grow fast
Merging with or acquiring another company is a fool-proof way to grow quickly and profitably when the process is done right, and the ability to integrate is in place.
You need to make strategic decisions first and then start looking for opportunities to merge with or acquire another company.
Remember to be patient and don’t push, but always be ready to go after identified acquisition targets.
Views on acquisitions
After the record-breaking year in 2021, the global M&A market has returned to pre-2020 levels of activity during 2022. Geopolitical pressures...
After the highly volatile year of 2020, the global mergers and acquisitions (M&A) market has reached record levels in the year 2021. The...
2020 was a better M&A year than expected. Although, the number of M&A deals dropped in Q2 and Q3 compared to 2019. In some industry sectors,...
It seems that COVID-19 has impacted the M&A market quite heavily, which is not surprising. The overall number of transactions will drop steeply...
A market valuation helps determine the company’s worth on the market. Valuing a business is often described both as an art and a science. Usually,...
Is inorganic growth your strategic choice? Have you acquired a company, or are you planning to do so? As I wrote in a previous article, it is...