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M&A - Acquisition Strategy

 

Business

 

There are many steps that need to be taken when organizing the acquisition of a company, division, or product line. Initially, an acquisition strategy needs to be developed. An acquisition strategy is essentially a business plan which acts as a road map for completing a successful acquisition. The objectives of the acquisition search need to be clarified, and potentially, written down. Another important aspect of this plan is to detail the guidelines to be used when screening acquisition candidates. One does not want to get caught wasting time on a target when the probability of closing is too small or on a target that will not add value in the future. A defined acquisition strategy will give the buyer a method to evaluate potential acquisition candidates relative to the stated objectives of making such an acquisition.

Another crucial aspect of a well-defined acquisition strategy is establishing an acquisition team. An acquisition team must have their responsibilities and authorities clearly mapped out. It is also important that different parts of the company are represented within the acquisition team since they may have conflicting interests within the organization. Typically, the owner or CEO is responsible for selecting team members and being aware of any conflict of interests that may exist between parts of the company. For example, the sales people may be focused on selling low margin products whereas finance may only want to acquire targets with high gross margins.

The acquisition team should be comprised of product specialists, finance, legal, marketing, etc. so that the target can be understood at multiple levels. Like any team, the CEO needs to guide the team members to insure that objectives are met, conflicts are minimized, and the resulting acquisition is successful.

Every company is unique in its own way and management knows better than anyone what makes their company different. It is important to understand current market share, manufacturing costs, whether or not you are on the low or high end of the market, where working capital is being utilized, how much marketing is being done, etc. By analyzing these aspects, the buyer will be able to develop an acquisition strategy that compliments the buying company’s strengths and mitigates its weaknesses.

Topics: International, M&A