What makes your company worth buying for an experienced, strategic acquirer? Bain & Co published a buyers’ checklist in an article on M&A. The basic premise is that M&A is a part of most winning companies’ success and disciplined acquirers pursue only those deals that satisfy a list of key strategic criteria. So I inverted their checklist to a list of questions for sellers on how a strategic acquirer thinks :
- Can your company’s acquisition generate leadership economics for the buyer—or, above average returns because of superior costs, customers, capabilities or leverage? Market leaders generally have lower costs than their competitors. They often enjoy greater pricing power, brand recognition and differentiation. These advantages translate into better performance. Measured by return on capital, for instance, leaders typically outperform followers by a factor of two. If acquiring your business can help the acquirer attain a leadership position, it may be a deal they will want.
- How predictable are your cash flows, and how are they discounting potential risks associated with your business?
- What does the strategic acquirer believe is the potential to capture cost and revenue synergies by buying your company?
- What is their ‘parenting’ advantage, and how will they manage your business? An acquisition can strengthen or extend your product portfolio. It can open up new geographic regions, customer groups and distribution channels. It can provide you with supply chain assets or access to proprietary research. While a business may not fit well in one company’s portfolio, it may be perfect in another’s, thanks to what is known as parenting advantage.
- Are they searching for scale deals or scope deals? Scale deals involve a high degree of business overlap between the target and acquirer, fueling a company’s expansion in its existing business. In scope deals, the target is a related but distinct business, enabling an acquirer to enter a new market, product line or channel. Inexperienced acquirers tend to focus mainly on scale deals, those that improve or consolidate their position in a given market. Experienced acquirers average a 50-50 mix of scale and scope deals, improving their market positions while also adding product lines, geographic reach or other important capabilities.
- Last but not least, how will the market react to the announcement of the acquisition of your business?
Here’s Bain & Co’s visual on a highly skilled strategic acquirer’s M&A processes.