The tills of many European companies are well filled at times of low-interest rates, and what could be more obvious than a strategic acquisition?
Increasing value through acquisitions is, therefore, a common consideration for European companies of all sizes these days. Strategic considerations range from the acquisition of competitors in the same business sector to the vertical acquisition of companies in adjacent business sectors. The logic of acquisition is widely known: After successful integration, a horizontal acquisition should lead to a distribution of the costs of the secondary value-added processes over more business volumes and thus to cost degression and margin improvement. The vertical acquisition is intended to open up adjacent business areas with higher margins by exploiting existing corporate capabilities, thereby increasing the average profitability of the company.
With these or similar considerations, more and more companies are looking for acquisition targets. But how do you find the right acquisition target?
He who searches finds
Sometimes it’s quite simple: the dialogue with the target company existed even before the buyer knew he was a buyer. Usually, it is much more demanding – then the search begins with a full cash register and strategic vision. Such a search for a target company offers the opportunity to draw up a map of one’s own industry, analyze competitors and the attractiveness of adjacent business areas and, last but not least, rethink and review one’s own strategy and objectives for the acquisition – if needed, with the help of a third party.
In most cases, a more or less clear target image of the company to be acquired stands at the beginning. This target image can be expressed in the products, size, geography or other desired parameters of the target company. As soon as the parameters of the acquisition target are known, the creation of a map in the relevant competitive environment or in the relevant adjacent business area can be started. The quality of the data for the creation of such a map varies. The result is a more or less sharp picture of the population of possible target companies from which the most suitable candidates can be selected, subject to the restriction of the data available.
Discretion, Discretion, Discretion
Although the selection of possible acquisition targets has shed light on the possibilities, it is not clear whether these companies or their owners are interested in a transaction at all. This raises the delicate question of how to approach possible target companies. Such an approach involves a number of risks for the prospective buyer and the target company: The prospective buyer usually does not want to make public in the market the information that he is interested in a transaction – reputational consequences can be more or less negative depending on the circumstances. Discretion is equally important for the target company – if an intention to sell becomes known in the market, this can have negative consequences, including loss of sales. A target company becomes even more exposed in later phases on the way to a transaction – when extensive company information is disclosed in the due diligence.
Whenever there are already points of contact between interested parties and target companies, it makes sense to use these existing communication channels to carefully sound out the interest in a transaction. If there are no points of contact at all, the implementation and accompaniment by an experienced third party can make sense – due to the delicate circumstances of the approach. Success here depends both on the form and manner of approach and on the interest of the owners in a transaction. Often a transaction interest is found with fewer companies than expected. Only where buyer and seller have a real and substantiated interest will there ultimately be a transaction.
A strategy is only as good as its implementation
The subsequent path from mutual interest to the final transaction should be carefully followed by both parties in order to be successful. The joint path of integration is the final, decisive step towards success: because only a successful integration ultimately leads to the success of the strategic acquisition.
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