In part two of Jason Maywald’s three part series on successful M&As, he looks at stage two of the process – search and screen.
STEP TWO: SEARCH AND SCREEN
Once you have pulled together your strategy and management is in agreement on the proposal, you’re in a position to proceed to the next phase: searching for companies, or “targets”, to acquire.
The first step is to develop a target profile for what the company wants to acquire. The purpose of this step is to succinctly articulate the types of companies the corporation is looking to. This step also assists in further defining the Strategic Rationale and identifying the areas where further information or clarification is required.
Once agreed, a Target Profile becomes the baseline criteria where potential targets can be assessed against to determine quickly if they’re the right ‘strategic fit’.
If we think of buying a company as being like buying a house, what we are doing in this step is determining our property search criteria: the state, city, suburb we want to live in, the number of rooms, proximity to schools, price etc. Once we have that in mind, we’re able to brief an agent to find houses that fit our criteria and we can start working our way through the various real-estate websites.
If we didn’t complete this step and were uncertain on what we wanted in a house, we would – (a) waste time and money inspecting every house that is up for sale and (b) leave ourselves open to being convinced by a slick real estate agent to buy something that isn’t quite right.
Development of a Target Profile requires us to think not just about the target business today, but also about how we want it to be operating into the future as part of the combined group.
Getting the Target Profile right allows a company to efficiently filter through the range of targets that simply won’t ‘fit’ in order to identify the few that might. If you’re no sure where to start, have a look at the template we’ve put together here:
Attributes
The ideal target will be:
1. profitable;
2. the leading [description] in their market.
3. have long standing relationships with [identify key suppliers or customer segments].
4. already be developing and offering propriety [describe products] in their market.
5. licensed to [describe any licensing required]
6. fielding a successful sales force with national coverage.
7. operating a [description] business model.
Out of scope businesses
[specify what types of business are out of scope – eg sub-scale operations, start-ups etc]
Geographic location
The ideal target will be operating across multiple jurisdictions in [ ]:
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our primary focus is [ ];
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of secondary consideration are the markets of [ ].
Customer base
The ideal target will have:
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well-developed long term relationships with [describe customer base].
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scope for further expansion of existing customer base (ie. ability of existing business to further grow revenue with addition of acquirers skills and technology).
Brand recognition
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Brand recognition is not important unless the brand drives value through the target’s client base.
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Unless the target has a compelling direct to consumer strategy we do not have a desire to pay the goodwill associated with a recognised consumer brand.
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We would seek to rebrand (or co-brand) the target post acquisition.
Ownership
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Preference towards closely held private companies.
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Will consider corporate divestitures of non-core business units.
Transaction parameters
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Investment size: transactions up to [amount] considered.
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Preference in all cases is to achieve majority control.
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Vendors/ Key personnel must be prepared for acquirer to be intimately involved in day to day business operations.
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Key personnel will be required to enter into a minimum [3] year employment/directorship commitment.
Jason Maywald is a highly experienced legal and transactional advisor in the insurance and medical assistance sectors. He holds a Bachelor of Laws from the Queensland University of Technology, and has significant experience in competitive corporate acquisitions, IPOs, commercial property acquisitions and disposals, corporate restructures, and hostile and friendly takeovers.