Acquisition Candidate Selection
By Denise A. Harrison
Note: This article was originally printed in Compass Points June 2008.
Often teams determine the best way to achieve a strategic objective is through acquisition. This decision will come after a thorough evaluation of the make vs. buy options. Once it is determined that an acquisition is part of the solution to achieving a company’s strategy it must evaluate potential candidates. This evaluation step is paramount to the success of the acquisition. One error that often occurs is the evaluation of only one company or a specific company becomes available and that company becomes the solution. DO NOT LET COMPANY AVAILABLITY DRIVE STRATEGY OR LIMIT THE CHOICES YOU EVALUATE. Once your team identifies potential acquisition candidates, rate each company based on criteria. In this article two of the criteria will be evaluated.
- Fit with strategy: how well does the company actually fulfill the desired objectives of the acquisition?
- What else (excess baggage) come with the acquisition and what should we do with it? Very few acquisitions are pure plays.
Let’s explore each these two criteria:
Fit with strategy
Very rarely is a targeted company a “perfect” fit. All candidates must be evaluated based on how closely they fulfill the strategic objective for the acquisition. Does the company meet the customer relationships set out as part of your objective? Does it have the required products and/or services? Does it have the distribution channels that we need? It is important that the team sets up key criteria before acquisitions are evaluated. If this is not done upfront then you will have no way to evaluate how one company stacks up against another company.
Other baggage is where many acquisitions fail: the targeted company has what you want and fits nicely into the strategy that you are looking to accomplish, but it comes with many other areas in which you are not interested. It may have products and/or services that are not part of your strategy; it may be in markets that are not part of your strategy. So what? Well, it looks like a minor problem, but then your team finds that it loses focus due to these extraneous products/services and/or markets. All of a sudden your strategic plan includes areas that are not part of your core business and resources are pulled off to enhance these areas instead of focusing on the original strategy. Conflicts arise concerning priorities within the company and these conflicts distract the company from its original mission.
Recently a medical devices company wanted to fill in a gap in its product line. They purchased a company that was available and began integrating the acquired company into its planning process. This acquired company was in a number of market segments that were new to the company. These segments had different requirements for the product causing a great deal of conflict in product development concerning the future feature/functionality requirements of the product. The product had one set of requirements to meet the acquiring company’s needs and another set of requirements to meet the extraneous segments’ needs. A product emerged that was a compromise — and neither of the markets was happy with the result. The new products were not successful and new product development time lengthened because the product was being developed to serve two different masters. Trying to serve these conflicting priorities sent the acquired business into a tailspin. When you make an acquisition, consider baggage that comes along with the company when evaluating an acquisition target. You must have a plan for dealing with the baggage (spinning off, keeping) before you make the acquisition, otherwise these conflicts will occur and cause the acquisition to be unsuccessful.
These are only two of the areas you must evaluate when making an acquisition. For more on Acquisitions, watch our free webinar Acquisition: 8 Steps to Success.
Denise Harrison is a senior consultant for the Center for Simplified Strategic Planning, Inc. She can be reached at email@example.com.
© Copyright 2015 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission granted with full attribution.