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Criteria for identifying the right acquisition firm

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A successful M&A is like a good marriage based on shared values and honesty. When it comes to a happy or sad acquisition, both sides need to demonstrate mutual respect, trust, honesty, and communication like any marriage”

Tim Casio, Samsung NEXT’s Senior Director of M&A

Mergers and acquisition enable companies to grow their market share, expand their geographic reach, and become more influential players in their respective industries. When one company buys another, it takes both the good and the bad with it. If the target company is in debt, is embroiled in litigation, or has disorganized financial records, these issues become the new company’s problems to solve.

Nowadays, companies that seek to expand through acquisitions are already dealing with much criticism. Multiple studies proclaim the desire to acquire other businesses to be a sign of weakness. They also affirm that the differences in corporate cultures and other organizational differences become a significant reason for the failure of a majority of M&A transactions. After reading all this, it is not easy to believe that any company in its right mind would even consider an acquisition into account.

In our experience, the potential of completing a successful acquisition is assessed to a significant portion before the first target is identified. Before undertaking the acquisition trail, it is crucial for an organization first to comprehend its own experience and capacity to handle various projects. In reality, there is no particular magic formula for a successful acquisition. Like any other business process, they aren’t inherently good or bad, just like marketing, research, and development. Each transaction requires its strategic logic. Therefore, this process of identifying the right acquisition firm might look like a cakewalk, but, in reality, it is more like a roller coaster ride in itself that demands a strong sense of strategic reasoning before we can proceed to the rest of the integration process.

But before we step on to the criteria of identifying the proper acquisition for a company,

What makes a good acquisition?

Majorly, successful acquisitions are distinguished by the target and the acquirer having complementary assets or capital, which ultimately results in a collaboration between the two and enables them to acquire a competitive edge and strategic advantage. Our team at MergerWare believes the following points to be crucial while looking up to a good acquisition target for a company:

  • An efficient and potential acquisition firm would create value for both the buyer and the seller. An organizational and behavioral transition can be used as an appropriate tool to calculate a company’s value creation. 
  • Companies should anticipate problems by being open and truthful with one another at the onset of the M&A project. If a company’s founder can’t be honest with their customer initially, it should not be considered a good fit.
  • Firms that enter into an M&A process should understand that they are not oppositional but rather equal and cannot function individually.  Each side should therefore have a vested interest in the happiness of the other.

How to identify the right acquisition firm for your company/organization?

The majority of companies contemplating acquisitions do so to supplement their organic growth. Acquisitions provide firms with additional expertise and resources that allow them to serve existing customers and attract new contracts in a competitive environment in a better way.

Acquisitions often help the business retain its competitive advantage. It’s a significant investment, not just in financial terms but also in terms of the time required to complete these transactions. Following up on the recent buyouts and investments, we’ve compiled a list of things to think about while looking for the right company for acquisition.

Boosting the success rate of the target company

One of the most common value-creating acquisition techniques is to boost the target company’s performance. Simply put, you buy a business and dramatically lower prices to increase margins and cash flow. The acquirer can also take action to boost sales growth in certain situations. The most substantial private-equity companies also follow this approach.

Consolidate to get rid of unnecessary resources

As industries mature, they typically develop excess capacity. The combination of higher production from existing capacity and new capacity from recent entrants often generates more supply than demand. It is in no individual competitor’s interest to shut a plant. However, companies often find it easier to shut plants across the larger combined entity resulting from an acquisition than to bar their least productive plants without one and end up with a smaller company. Companies may also minimize excess power in an industry in less concrete ways. While removing excess capacity can add significant value, with most M&A transactions, the majority of the value goes to the seller’s shareholders rather than the buyer’s. Furthermore, all other industry competitors can benefit from the capacity reduction without taking any action of their own (the free-rider problem).

Obtain skills or technologies effectively and in a much more cost-efficient manner

Many technology-based companies buy other companies that have the technologies they need to enhance their products. They do this because they can acquire the technology more quickly than developing it themselves, avoid royalty payments on patented technologies, and keep the technology away from their competitors.

Making the best of a company’s industry-specific scalability

In M&A integrations, economies of scale are a vital source of value creation. While they may be helpful, one must be vigilant when using economies of scale to justify a purchase, particularly big ones. Since many multinational corporations also operate at a large scale, combining two significant corporations that work in this fashion would not reduce unit costs. When the incremental capacity unit is substantial or more extensive, the organization absorbs a smaller company. In this way, economies of scale can prove to be valuable sources during acquisitions.

Choose winners early and assist them in growing their companies

Making acquisitions early in the life cycle of a new market or product range, long before anyone else realizes that it can expand dramatically, is the final winning formula! This acquisition policy or process necessarily involves a three-dimensional disciplined approach from management. First, you must prepare yourself to invest early on, well before your competitors or the industry realizes the industry’s or company’s potential.  Secondly, you must place several bets and be ready to accept that any of them can lose, and third, you’ll need the expertise and patience to expand the companies you’ve acquired.

Learn more about such strategies for a successful M&A on our M&A Management Playbook page.

Do you want to have a positive M&A deal experience for your company and are interested in knowing the entire integration process’s know-how? 

Visit and schedule a demo with us to learn more.