Performing buy-side M&A transactions starts with an expert-level understanding of an industry, including key players, personnel and future trends. The most successful acquirers within a market take years understanding the lay of the land within their industry, getting to know the players and crafting a roll-up strategy with aligned goals with some of the most prolific within their market. A good buy-side search includes both art and science with a great deal of the heavy lifting done on the front-end to ensure a transaction is completed smoothly.
What follows are a few of the search and screen parameters employed when companies pursue targets for growth by acquisition.
THE TARGET COMPANIES
Determine target industries with the relative “fit” parameters based on complements, supplements and asset requirements is the first component of beginning and selecting a search and screen program for buy-side M&A. In doing so, the acquirer will scour publications (on and offline), websites, associations, databases and even LinkedIN to understand and know more about the target industry, its ecosystem and how all the various players relate within the macro-market.
SCOURING THE WEB
In particular an acquirer’s search will best be served by diving deep into industry information where M&A activity is routinely published. If it is not published, other data resources–while more expensive–can provide a helpful boost in finding gems, particularly when searching for industry trends. Some of the best resources here include Privco or Pitchdeck. Search engines, online listings services and deal networks provide great resources for both posting and searching.
INDUSTRY DATA & TRENDS
An initial stab at the companies in the industry is followed by an industry deep-dive analysis. This situation analysis includes typical pricing on companies within the industry, profitability, structure, growth trends, consolidation opportunities, maturity, seasonality, industry cycles and other macro economic indicators.
Understanding target industry terms and nomenclature will help to improve the efficacy and legitimacy of the deal team for investors, acquirers and clients. It will also further improve communication between all the potential parties to the deal. When you speak the language of the seller, you’re more likely to get an audience with them. The mutual chemistry, in combination with a unique industry knowledge and M&A competencies, is also the reason why both buyers and sellers use IMG as their preferred advisor in M&A transactions.
INDUSTRY MOVERS & SHAKERS
Every industry has their respective movers and shakers, both on the company side and the management side. Investment bankers working a deal in a specific industry will compile an exhaustive list of all the players in the field per some of the resources listed above. What we’re being specific about here is a targeted short-list including all the most important companies and industry leaders. Eventually this list will become more actively massaged than others on the larger, more exhaustive list. The short list will include all the best industry experts including engineers, company managers, CEOs, purchasing agents and other employees of some of the more important companies on the short list.
The list building and company outreach should also include trade associations listings. Trade shows are a great place to find and source some of the best contacts within a market. Some of my best contacts within any given market have occurred through direct outreach at trade associations and direct contacts made at industry-specific trade shows.
An exhaustive industry search is followed by a semi-deep screening of the least likely targets found in the search process. This means excluding targets that do not match the parameters set forth in the vertical or horizontal merger pathway and those that do not fit as complements or supplements to the business. This process requires the most discipline of all because it requires buyers hungry to do a deal to still have the wherewithal to say no.
POST ACQUISITION INTEGRATION PLAN
Drafting and solidifying your post-acquisition plans is something we’ve discussed previously in other IMG InSight articles. The resources available for post acquisition integration are exhaustive and the room for error is even greater. Any post acquisition plan is only a plan until the deal is finally consummated. Each deal takes on a mind of its own and no two deals will be the same. Putting the plan on paper as part of the search and screen can help in navigating those unforeseen events that will most certainly arise.
Well-executed buy-side M&A adds some of the most rapid accretive value to any company looking to grow beyond a stymied organic growth trajectory. It requires a keen eye for details within the industry that others may miss and a relentless determination to not only find the right deals, but court the potential targets until they’re convinced this buyer is the right one for them. While the aforementioned list is by no means exhaustive, it helps to paint a picture of how the search process occurs when buyers are seeking accretive buy-side deals.