How to acquire optimally
Eight techniques leading to five deliverables for acquirers
We call this the ‘optimal deal ecosystem’ where everything we do is designed to produce interconnecting benefit flows to lead to concrete deliverables which together lead to capturing the best target company at the best price. Few firms connect their actions throughout the M&A process to deliverables that feed into goals in this scientific way. As practitioners of ‘advocacy M&A’, there is nothing we do that has not been reverse-engineered to result in our acquirer client’s advantage.
More deal flow
Closer relationship with targets
More deal flow combined with value for money
More opportunity from different geographies & sectors
Not missing the optimal partner
Stronger negotiation advantage & find bargain
Owners often trade price when they see strategic fit and develop trust
Quasi-exclusive relationship helps eliminate competitors
More time to evaluate synergies
Make more investments
Open new markets
Match with deeper synergy
Avoid auction prices
Enjoy benchmarking visibility
Investing with confidence
Value for money
Note: The chart is focused on the proprietary tools other firms don’t provide. Of course, we continue to support clients after step 8 (Joint Business Planning) with negotiation, LOI, project management of SPA and due diligence, and rescuing a deal, as needed, through to completion.
We’ve developed an integrated set of methodologies to give an acquirer an advantage in the market, to result in transactions with better value for money and success in strategic expansion.
Our four ‘thinking tools’ lead to more deal flow and our four ‘linking tools’ lead to advantageous relationships with target companies.
Each of these benefits changes the power balance to complete more transactions, open new markets, deliver deals with deeper synergy, benchmarking visibility and avoid auction prices.
Our tools result in clients expanding strategically in transactions that have value for money. We can thus fulfil our client mantra: “It’s better to buy great assets at a fair price than fair assets at a great price.”
We call this the Thinking Linking Ecosystem, because everything is designed in a dynamic way to deliver multiple advantages to meet acquirer goals.
The eight tools of Thinking and Linking
Thinking phase covers identifying target companies through to getting in the door. We use a ‘leave no stone unturned’ approach throughout the Thinking phase - it applies to not missing any companies in the initial research of potential targets and also not giving up on trying to open the door with relevant targets.
1. Deep Criteria Analysis
We engage in an acquisition criteria discussion with client and produce a 360-degree view of the results.
This view covers many dimensions such as:
Strategic: key synergies sought or other deal goals
Cultural: operating culture/ambition, ownership culture
Cost: valuation parameters, funding/deal size parameters
Motivation & control: deal structure
This detailed view will allow the client’s criteria to be overlaid onto opportunities which will all be classified according to exactly the same format for accurate matching.
When multiple target profiles are being sought by our client, the criteria on other dimensions will very often change accordingly, meaning that we will often use either a matrix approach or a separate analysis for each mission.
We often challenge the client criteria especially in terms of such issues as:
Resulting population: sometimes the criteria is too exacting to lead to any target companies
Mission prioritization: in cases where there are different target types
Although the criteria are then confirmed for the process to continue, it will be iteratively amended when we later engage with concrete targets and client usually refines its preferences and priorities accordingly.
Within the criteria, we further collect prioritization, e.g. within the deal size range, we ask which side is more preferable, or if there are multiple geographies of interest, we ask if there is any priority country. Then we confirm the refined criteria back to the client.
Example of different criteria for each activity across two subsidiaries
2. 'Total Universe' attitude
We believe that before contacting any target, it is critical to try to identify every target in the market that could satisfy the criteria. We call this our 'Total Universe' approach. It is based on the idea that any company could be for sale and we should not exclude any potentially suitable targets until we have investigated and contacted them.
We only exclude companies when we have sufficient info to know that they are outside of the critical criteria.
3. Target Scoring
We start the process of prioritising targets based on how closely they satisfy the criteria from the initial info we have available. We often use a traffic light system to indicate the likelihood of a deal with each target company.
Prioritisation is always an iterative process based upon 3 factors: 1) new info we obtain about targets during the deal process, 2) from comparing the relative suitability of different targets, 3) sometimes client amends the criteria as the assignment proceeds.
Example of completed scoring before outreach
4. 'Opening the door' skills
We pride ourselves on being able to open a high percentage of doors using a combination of determination (not giving up) and creativity (finding solutions to catching target companies’ interest) and persuasion (a range of techniques we have developed to persuade companies to let us have an exploratory discussion with them).
We also use our role as a third party to engage in initial conversations without the pressure of the target having to agree to meet the acquirer in the first contact.
While opening the doors, we always make sure we show the 'Buyer Beauty' to the target companies - we help ensure the client's strategy, integration plan and deal structure are all seen by target companies as logical and not intimidating. A well-presented client will be more attractive to target companies, resulting in more interest and a lower purchase price.
5. 1-on-1 techniques
We start the linking process by following a 1-on-1 approach where the focus is on developing a close trusting relationship with each target company and also working with them on a tailored basis that takes into consideration their individual attitude, worries, goals and timings.
This approach starts from the first contact and runs through the entire linking phase through to signing the LOI and to completion.
Our techniques of creating an environment through our actions and our client actions, coordinated together, in which the benefits of 1-on-1 M&A flow.
Eight magic ingredients in 1-on-1 M&A
Note: In 1-on-1 M&A the owner is not a seller or even necessarily wants to be a seller at the start of the process. That’s why we use word owner rather than seller until the deal completes.
6. Owner mindset analysis
Our experience shows that an owner can fall into one or more profiles. We pride ourselves on being able to ‘get inside their mind’ – to explore the owners requirements and goals. We then use this sensitivity and insight throughout the M&A process to find a win-win solution (including deal structuring) to make our client’s proposal more attractive to the owner’s needs without being more expensive on a net basis to our client. It also helps us tailor the entire 1-on-1 M&A process more effectively.
7. Cultural fit analysis
We have discovered that unless there is a good relationship between clients and owners, completion of a deal is very unlikely to occur. This is because of the frustration for both parties in the long deal process including negotiation of economics, legal agreements, the often arduous deal process itself including the impact of delays on one party or another. All can lead to a breakdown in the transaction. If there is a good relationship, these bounces on the road can often be solved.
We pride ourselves on being able to understand the values, visions, and personalities of the principles of both parties in the transaction as well as what they would look for in being able to trust a counter-party. Positive matches according to this analysis can be taken into consideration in prioritisation or exclusion of targets. Negative matches can be identified to our client with warning that the deal has a lower chance of success.
The types of things which are often relevant to consider are attitudes such as:
8. Joint Business Planning
Joint Business Planning is the best way to investigate whether a target company has a strong strategic fit, allowing us and our client to start quantifying the impact synergies may have on pro forma EBITDA. Having this information prior to negotiation allows our client to price offers more accurately, avoiding overpaying and also avoiding losing opportunities by underpricing.
In cases where the seller will be offered upside based on the synergies, JBP can be a powerful way to attract the sellers, limit upfront valuations and persuade them it is logical to accept an offer.
JBP has other by-product values such as: an early view on operational integration feasibility, and an early view of the cultural fit between management teams.
The process tends to attract owners who care about how the target will fare post-transaction and also differentiates our client which feeds into our 1-on-1 M&A Technique to keep the company out of an auction process.