Successful acquirers begin with an investment thesis, a statement of how a particular deal will create value for the merged company. The most compelling investment thesis is one that explains why and how an acquisition stands to improve the existing core business.
Remember: Merger strategy is inseparable from business strategy. Before you can create an investment thesis, you need to understand the basis of competition in your industry—basically, how your businesses make money and how they compete. Most companies compete primarily on the basis of cost position, brand power, consumer loyalty, real asset advantage, or government protection. The best acquirers know their core strengths and target deals that enhance those strengths.
Now, what steps should you take to identify appropriate targets and define deals that make sense for your organization?
- Determine your basis of competition
- Rationalize the core, exiting businesses that don’t reinforce it
- Identify potential targets
- Develop a sound investment thesis for each target
- Develop good relationships with your targets
- Focus on the right size deals and the right frequency
The message here: Do your homework, long before you approach acquisition candidates. Develop a sound investment thesis, based on a clear growth strategy and a thorough understanding of your basis of competition.