Acquisition search refers to the systematic process of identifying and evaluating potential target companies for acquisition, typically undertaken by investment bankers on behalf of their clients. 

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Investment banks help their clients find companies with the most potential in terms of synergies, complementary assets, innovative offerings, and growth opportunities. They also guide their clients throughout the acquisition process, leveraging their experience to negotiate acquisition terms, manage risks, and facilitate a smooth transaction.

What is a business for sale?

“Business for sale" refers to a situation in which a business owner or entity is looking to sell their entire business operation, including its assets, liabilities, and often its customer base, to another individual, company, or investor. This transaction typically involves the transfer of ownership and control of the business from the seller to the buyer in exchange for an agreed-upon purchase price.

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The potential target company needs to align with the client's strategic objectives. The acquirer aims to maximize their value creation and position with the merger or acquisition.

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The search for acquisition targets is time-consuming and takes up hours of M&A professionals’ work time. Increasing the efficiency of the acquisition search increases the likelihood of finding the optimal company and profitable deals for both the acquirer and the bank.

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The acquisition search process step-by-step

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Let's first discuss the key stages of the acquisition search process.

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1. The client's acquisition goals

The acquisition journey begins with a clear understanding of the client's acquisition goals. The objectives of acquirers range from diversifying their portfolio and entering new markets to gaining technological capabilities or expanding their customer base.

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This stage sets the direction for target identification and assessment. Defining the goals for the acquisition guides subsequent decisions.

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2. Preliminary target search

The preliminary target search involves scanning the target industry and market segment for potential candidates that align with the client's strategic goals. Early research gathers initial information that will aid in the subsequent screening process. 

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To detect the most potential deals it is essential to get access to large amounts of company data. Using effective deal origination platforms such as Inven makes it possible to identify the most relevant companies faster from multiple data sources.

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3. Screening and qualifying potential targets

From the initial pool of candidates, the focus shifts to screening and qualifying potential targets. This phase involves a more in-depth evaluation of financials, market position, competitive landscape, and growth potential. With their specific criteria, investment bankers narrow down the list to those targets that best align with their customers' objectives. Inven offers an AI screener that eliminates manual work during the screening stage.

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4. Due diligence

The refined list of potential candidates is scrutinized, assessing financial, legal, and operational aspects. Any hidden risks, liabilities, or discrepancies that might impact the acquisition decision are examined. Due diligence ensures that acquirers have a complete picture of the company.

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5. Acquisition terms

After due diligence, the investment bank moves into the negotiation phase. Purchase price, payment structure, post-acquisition management, and other crucial aspects are decided.

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6. Closing

The culmination of the acquisition is the closing. Closing the acquisition needs attention to detail, legal documentation, and seamless coordination between the parties to ensure a successful transition of ownership. At this point, all negotiations are finalized, legal documentation is prepared, and the necessary approvals are obtained.


Key challenges in acquisition search

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There are several typical challenges, often related to a lack of transparency in data, that can hinder the investment bank's ability to serve their clients optimally.

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Not identifying the right targets

Investment banks need to effectively screen and qualify potential targets and minimize the risk of pursuing unsuitable options that do not match the strategic goals of the client. Investment banks waste valuable resources and time by googling for companies and analyzing websites to determine their suitability.

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Identifying the right acquisition targets can be made easier with a deal sourcing platform. If the platform has a built-in AI screener, it increases its efficiency and accuracy of locating companies within niche markets.

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Many acquisition targets might also be of interest to other potential acquirers, which highlights the significance of having access to high-quality company data in this stage to avoid a competitive bidding process.

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Difficulty to find owners ready to sell

There can be limited visibility of companies that would be in an optimal stage for acquisition. It can be challenging to detect companies within the investor's industry and company type preferences. The desired group often includes the middle market, which has less public data available. Or the targets are family-owned companies established 20-30 years ago, which means that their owners are nearing a point where they are more eager to sell and retire.

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Industry codes do not take internal variation into account

Fixed industry codes can also make it challenging to find companies that have exactly the capabilities and processes the acquirer wants to find. Sometimes owner and founder contact data are inaccurate.

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Analyzing the wrong kind of targets

Misalignment in terms of search criteria can result in wasting too much time building a mismatched target list. Criteria setting and thorough screening in the preliminary search stage optimizes resources so that they are not lost during due diligence.

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Hidden liabilities of the targets

An acquisition target might have hidden liabilities, including pending lawsuits, environmental issues, or unfavorable contracts. They may not be immediately apparent but can significantly impact the value and potential of the target.

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Tips for conducting effective acquisition searches

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Investment bankers have different types of search strategies. Yet, the challenges collectively highlight the need for an effective acquisition search process to achieve the desired outcomes for the client.

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Here are some tips on how to search for acquisition targets more effectively:

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Chat regularly with industry experts

Industry experts have extensive knowledge of the latest developments within their field of expertise. Therefore, they are able to detect market disruptions or behavioral trends that are likely to influence companies. Moreover, they can provide information about companies with recent changes in their management, operational environment, customer segments or behavior, or any other area that could potentially lead to willingness to sell.


Use data analytics or software to identify potential targets

AI and NLP software scrape the internet and other sources to identify companies that could be otherwise missed by analysts. NLP tools can analyze text from various sources and databases to match to the investor's criteria. In recent years, we've seen several software options in this field.

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For example, Inven is built specifically for acquisition target searches. It allows M&A professionals to find companies in specific niches, offering relevant data points and good matches for analysis. The software understands the content of websites and other data sources to build a list of relevant companies. The list of potential targets comes in an exportable format for analysts to work on further. 

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Partner with accelerators

Market conditions and the capability needs of investment banks' clients change over time. Accelerators can provide access to curated deal flow and interesting new innovative companies. They are focused on innovation and disruptive technologies. By partnering with accelerators, investment banks can keep a finger on future trends and identify companies that might bring novel capabilities to their clients.

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Conclusion

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M&A professionals invest a significant amount of time and effort in finding the perfect targets for their clients. The acquisition search is a complex and challenging process. We shared some key challenges in the acquisition search and tips to make them less cumbersome. 

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A great deal sourcing platform has a significant influence on the bank's productivity. It can be very rewarding to find viable targets faster. 

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Increasing the professionals’ capability to find potential companies leads to a greater number of successful deals. Inven makes acquisition target searches faster and less work-intensive for investment bankers.