How are acquisition targets identified in practice?
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In your experience, how true is the following statement and how are acquisition targets identified?
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“The M&A process should support and flow from a rigorous strategic-planning process – not the other way round.
Identifying a M&A target and then trying to justify it strategically is akin to putting the cart before the horse.”
UnquoteI agree with this statement. Warren Buffett generally directs his investments toward companies whose businesses he knows and understands, and he stays away from those he doesn’t. I liken target company selection to this approach. If you understand the business, it becomes easier to identify what can be improved, the potential it holds, or any red flags.
There is a multi-faceted reality to this – Targets can be strategic outreach and it could also be inbound from companies, bankers or network.
In my experience, we’ve more often done deals where we were the aggressor vs. cold outreach from a potential seller. Likely due to executive leadership motivation to bring their strategy to fruition vs. what feels often like an avalanche of poorly targeted opportunities.
Based on what I have seen, some are through the middle man, such as sponsor or financial advisor, while some are established connections between buyer and seller.
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