At the beginning of a buy-side M&A process, it is important to clarify the main reasons why the company is looking for an acquisition. Usually, such a project starts with a first kick-off meeting, which takes place at the customer’s site. During this meeting, the project team, which mostly consists of the dealmaker, a manager and an analyst as well as the relevant contact persons on the customer side introduce themselves. The purpose of the kick-off meeting is to discuss the strategic direction of the company and to understand the main drivers for an acquisition in more detail.
A strategic approach to developing key criteria for an acquisition is essential for a successful screening of potential target companies. Usually, these criteria were already discussed in the kick-off meeting. Possible criteria for an acquisition can be size, profitability, geography, sectors, customers, but also the product portfolio, which can be a key decision factor for the acquisition.
Directly after the kick-off meeting, you will start to prepare a project presentation. In this presentation, the project, your client’s company and the investment highlights for potential target companies will be summarized on a few PowerPoint slides. In parallel, you will also start searching for potential target companies and list them on the so-called “long list”.
When creating the long list, you should carefully select companies that meet the desired criteria and really fit to your client. It is important that you understand the business model and the customer’s motives for the acquisition in order to find suitable companies. The first input on potential candidates is usually provided by your senior management, as they have already been active in the market for some time and have built up a certain specialist expertise. The long list is normally created in an Excel format and, in addition to the agreed criteria, usually includes further insights such as sales, profitability, customer portfolio, technologies and a short business description. For the search you should use common research databases. The long list could include several hundred companies, and you should be very thorough in this part of the process so that the list really includes all relevant companies on the market with the correct details.
After the long list has been completed, there is usually a separate meeting with the client to discuss the identified companies in a larger group. With the client’s agreement, the suitable companies are then put on the so-called “short list”. In the next step, the companies on the short list will be approached by you, or alternatively the dealmaker or the manager in case they have already had initial contact with the target. When approaching the companies, you should make sure that you first find out who is the right person to reach out to. This could be the owner, the CEO or the responsible manager in a private equity company that holds the target in its portfolio. Most of the time, the first contact is done by email. You should make sure that you explain why you are addressing the target company and why the company is an ideal fit for your client. The individuality of your approach is crucial for further communication between you and the person responsible on the other side. Thereby your counterpart can also realize that you have informed yourself in-depth about the company´s business model and that you are really interested in the company.
In summary, a structured buy-side process can help a company grow inorganically and support companies with a variety of strategic intentions. You should pay attention to working as thoroughly as possible from the beginning of the project and invest enough time in the preparation and first stages of the project. Understanding the business model and the market context will help you in the target search. A personalized approach for each target company in combination with a customized project presentation that highlights the overlaps between your client and the target company are also crucial factors for a successful buy-side project.