There are several ways to find the right firm for a merger or acquisition before you approach the owners.
Make a target shortlist
First, develop a profile of the sort of firm you want. Gather and review as much relevant information as you can on the markets, companies, products and services you need. Once you have developed the target profile, you can:
Consider firms you sell to, or buy from, already. Many acquisitions and mergers take place between companies that have an existing commercial relationship.
Encourage senior staff to use their networks to gather information about likely prospects in your sector.
Circulate the details of what you are looking for. Use investment banks or corporate finance firms who sell similar companies, if appropriate.
How to find a target
The most effective way to find a target is usually through using a professional adviser in your sector. They should be experienced in handling deals similar to the size of both yours and the target business. Although you should typically ask for a shortlist of ten potential businesses, you would normally pay the bulk of the adviser's fee when you have successfully completed business with the final target.
For more information about choosing a partner for merger, see joint ventures and business partnerships.
Growing a business by merger or acquisition
Opportunities to grow by merger or acquisition may exist where the target business:
- is undervalued
- does not use its assets to maximum effect
- would benefit from relocation
- has poor management
- has managers who want to leave or retire
- has complementary products or services which, when combined with yours, will enhance the offering to customers
How to approach a target business
When you have identified a suitable target business to acquire or merge with, you will need to register your interest in doing so with the owners or management of that business. You should:
- Make sure the target understands why you are interested in a deal and how you intend to finance it. Prepare the questions you would like answered. This is also your opportunity to explain your business and your future plans.
- If you are planning an acquisition, find out if the owner of your target business already has plans to sell and, if so, whether they intend to remain involved in it. Consider their motives for selling.
- When planning a merger, consider whether you could work well with the target company's managers and staff. Personality differences can lead to mergers failing.
Many businesses get professional advice from solicitors or accountants to help them decide. If you have not been through this process before, it is strongly recommended that you take on an adviser from the start. See choose a solicitor for your business and choose and work with an accountant.