Mergers and acquisitions (M&A) have always been challenging, especially in the post-pandemic business environment. Current economic uncertainties necessitate redirecting and reshaping corporate strategy.
Most executives want to diversify revenue streams and make their businesses more resilient against future downturns. An effective strategy to achieve these objectives is through M&A. Acquiring a company can provide access to new markets, products, technology, resources and management talent. That's because it is often less risky than pursuing the same goals through internal efforts over an extended period.
Now is an opportune time for executives to identify acquisition targets for a competitive edge. You will need a clear growth strategy, strong balance sheets, and access to adequate funding facilities. Then, you should set your sights on targets with promising growth technologies, solutions, and sectors.
Here are some steps to help formulate a successful acquisition strategy:
- Define a clear objective for the acquisition strategy:
A successful strategy begins with a clear idea of what you hope to gain. You need a clear business purpose for acquiring the target company. For example, to expand product lines or gain market share.
- Set the M&A search criteria:
Identify key criteria for identifying potential target companies, such as profit margins, geographic location, or customer base.
- Search for potential acquisition targets:
Use the identified search criteria to evaluate potential target companies.
- Begin acquisition planning:
Initiate contact with one or more companies that meet the search criteria and appear to offer good value. Use these conversations to get more information and assess how amenable the target company is to a merger or acquisition.
- Perform valuation analysis:
If the initial conversations are productive, request that the target company provide the following:
- detailed financial information,
- business plans, and
- financial forecasts to evaluate the target business as a suitable acquisition.
- Negotiate terms:
Use the valuation models to construct a reasonable offer and negotiate detailed terms.
- Perform due diligence:
Conduct an exhaustive analysis of every aspect of the target company to confirm or correct your value assessment. Investigate the company's operations, including financial metrics, assets and liabilities, customers, suppliers, human resources, and growth prospects.
- Agree on the transaction structure and terms:
Assuming the due diligence is completed satisfactorily, you can proceed to execute a final contract for sale. You must also determine the type of purchase agreement (such as an asset purchase or share purchase).
- Plan the financing strategy for the acquisition:
Explore financing options for the deal and finalise the details once the purchase and sale agreement is signed.
- Close the deal and integrate the acquisition:
Once the acquisition deal has closed, the management teams of the target and acquirer can work together on merging the two firms.
M&A can offer significant opportunities for growth and resilience in the current economic climate, where businesses face uncertainty and challenges. A systematic approach and selecting the right target companies will enable executives to execute an acquisition strategy well and position their businesses for long-term success.
* This article was partially edited with the assistance of ChatGPT, an AI language model trained by OpenAI.
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