How do I approach potential acquisition targets?

Dear Aunty B, 

My board has set some very lofty growth targets for our company with the proposed strategy to reach these goals being through acquisitions. I have compiled a list of targets but how do I make that initial approach, without immediately putting them offside?

Michael

Dear Michael,

Stop! I have more alarm bells going off than a fire station at Marysville. What do you mean you have compiled a list of targets? Based on what? You like the sound of their names? They all rhyme? You like the colours of their logo?

Your job is to tell your board how you are going to grow. Not let a bunch of cowboys throw a dart at a board and tell you to go forth and acquire.

Start with this premise: most acquisitions are a total waste of time.

Why do most people want to sell their business? A host of reasons but the bottom line is… well the bottom line. It stinks. For a whole host of reasons. And the owner of the business is struggling. You think you can come in and do a better job than they are doing? You think that you can keep their key clients and key staff through the transition? You think their revenue just goes straight onto your revenue?

Tom McKaskill is a global expert on exits and acquisitions. Type his name into our search bar and read everything he has written.

That will then affect the type of company you might consider. I am sure that will narrow down your list.

Now one of your roles as CEO is to talk to people who might eventually buy your business. Usually companies that you seek to acquire are your customers, suppliers or competitors so you have some contacts at these firms.

Work out a way to meet in a less formal environment at an industry event or a conference. After a chat you can get a better understanding of their culture and issues without any formal approach. And you can casually bring up the fact that you are on the acquisition path and gauge their response.

You can also ask your accountant if they know the other company’s accountant or you could use board members who are part of the potential acquirers network for a soft introduction.

The next stage is to get your trusted senior people to start to talk to their senior people and find out any information they can.

When you are more certain that this is an opportunity you make a more formal approach. That is you pick up the phone, ask to meet and put the idea on the table.

But heed the words of guru Tom: “Too often, executives undertaking the evaluation are undermined by their own desire to get the deal done that they take an overly optimistic view of the outcome from the acquisition.

If they anticipate cost saving through overlapping operations or economies of scale, they fail to take into account the costs of making the changes.

New sales opportunities are estimated without also taking into account that existing customers may resent the loss of a competitor or the additional pressure to take up new products or services. Target revenue numbers may be used to justify the investment but the disruption due to the loss of key employees may not have been factored in.”

Good luck!
Your Aunty B

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