Identifying the Right Target to Grow Through Acquisitions

If a company wants to grow, gain a stronger market foothold, and stay competitive, mergers and acquisitions (M&A) are one of the primary routes to consider. Done right, and that’s the key, they can help expand operations, open up new markets, and bring diversity into the business model.

But here’s the thing: it’s not just about buying another company. For an acquisition to really work, it needs to be planned carefully and tailored to the business’s situation: where it is in its lifecycle, what the market looks like, and how much financial wiggle room there is. That means not only looking inward, but also being proactive in finding and evaluating potential acquisition targets with a clear idea of long-term goals. This selection should align with long-term business goals and be integrated within a definite M&A strategy. Successful takeovers require uniqueness, stability, and alignment at each strategic level, such as mission, vision, business strategy, and operations.

Building a Long List of Target Companies

The first phase of identifying potential acquisition targets involves opportunity searching. Here, the principal objective is to develop a complete long list of companies that match the strategic and financial fit of the acquiring company. To achieve this, companies must first set a target profile that aligns with their strategy.

In order to shortlist the search to an affordable list, firms employ certain criteria such as:

• Revenue and market share;

• Industry sector;

• Profitability;

• Target markets and geographic presence;

• Number of facilities, branches, logistic centers, agencies, and distributors;

• Percentage of revenue obtained from international markets;

• Types and range of products/services;

• Characteristics of customers;

• Commercial activities and market positioning;

• Principal suppliers;

• Technological competencies and/or industrial patents;

• Structure of shareholders and management;

• Levels of employment and stability of the workforce.

By setting these criteria, companies can rank in a structured way across a wide pool of potential targets and assess the ones that align with their strategic goals.

Shortlisting the top candidates

The following step consists of designing a shortlist of top candidates, which typically includes 5 to 10 companies that best fit the acquiring company's priorities.

This step involves ranking the shortlisted companies according to main performance indicators and strategic applicability. Although several candidates could look alike, their differentiation on specific criteria, such as international distribution channels or technological competence, can determine the final ranking.

Once the shortlist has been identified, it is recommended to make an executive summary of each target candidate, emphasizing:

• Advantages and justification for selection;

• Key areas for more extensive investigation;

• Possible synergies that can result from the takeover.

Synergies need to be identified at this point. Possible gains could arise from relationships with suppliers, an increasing customer base, operational efficiencies in commercial functions, expansion of the geographic footprint, or industry specializations.

Formulating a Strategic M&A Plan

A written M&A strategy guarantees that acquisitions are not done in isolation but are integrated into the overall corporate development strategy. Companies should document their acquisition strategy in an Investment Guideline, including:

• The acquisition rationale;

• The level of senior management and board involvement;

• The role of project leaders and key stakeholders;

• A timeline with milestones;

• Involvement of external consultants and advisors;

• Budget allocation for scouting and execution stages;

• Decision-making criteria and financial thresholds for target assessment.

A well-defined strategy provides a structured approach to acquisition, through a transparent decision-making process aligning with the company's long-term goals.

Understanding the Risks and Alternative Strategies

Although acquisitions can possibly bring colossal growth, they also have in-built risks. Risk is proportionate to familiarity among the acquiring and target companies. Poorly planned acquisition can lead to financial drain, cultural incongruity, and inefficiency in operation.

In some cases, other growth alternatives, such as joint ventures, organic growth, or strategic alliances, may be preferable to a complete acquisition. Companies should consider whether or not organic growth would do the same things at lower risk, whether strategic partnerships can provide market access without ownership, and the potential to sell off businesses or restructure existing operations to increase efficiency.

The assessment of these alternatives ensures that an acquisition is the right solution before spending conspicuous financial and operating resources.

Post-Acquisition Integration: The Key to Success

Even the best-planned acquisitions can be unsuccessful if post-merger integration is not handled well. A well-thought-out integration plan should align corporate cultures and management styles, integrate operating and financial systems, retain key employees and management and realize the expected synergies through cost reduction or process improvement.

Integration efforts must begin early in the acquisition to optimize value creation and be sustained through tracking to address evolving challenges.

Conclusion

M&A acts as a strategic lever for companies, especially SMEs, helping them to strengthen their competitive positioning in both local and international markets. However, their success is based on clarity, consistency, and strategic fit during the process.

From target setting for acquisition to target identification and analysis, due diligence, and integration, every step requires careful planning and implementation. Businesses that implement a clearly defined, fact-based approach to going after M&A will be in the best possible position to facilitate long-term value creation and sustain long-term growth.