Whether you're a private equity investor, part of a large corporation seeking acquisitions, or an investment bank matching clients with opportunities, pinpointing the right acquisition target is essential. Investors often face challenges such as fierce competition, limited visibility across vast company databases, and identifying owners ready to sell.
Private equity (PE) companies aim to identify targets with operational inefficiencies or growth opportunities to leverage their expertise, add value, and achieve a successful exit strategy. Investment banks want to identify targets that align with the specific criteria and objectives of their clients. Strategic acquirers need to find innovative companies that complement their existing operational capabilities or know-how. Decision to acquire a company is made on a rigorous financial analysis, market research, and strategic considerations.
Decisions to acquire hinge on rigorous financial analysis, thorough market research, and strategic planning. However, high competition from other acquirers often limits the availability of attractive targets. Furthermore, high valuation expectations and complex negotiations, along with fluctuating market conditions and industry dynamics, can complicate the acquisition proces
There are several effective ways to identify and reach potential acquisition targets. Here, we outline strategies for finding M&A targets, building a candidate list, employing AI for more effective searches, and assessing the potential of these targets.
Building your acquisition candidate list
Where to find M&A targets with the right profile and growth prospects? Start by looking at these sources first.
Traditional methods for building acquisition target list:
Googling for companies
Starting the M&A target search can involve a lot of desktop search. Collecting initial information from news sites and public financial databases can give an idea of the market and industry landscape and provide cues as to where to direct the search next.
Going through industry registers
Utilize industry registers or databases that are specific to the target industry or geographic region. These registers include government databases, industry and trade associations, professional organizations, and trade directories. Many associations maintain member directories or databases that can provide valuable information about companies operating within the industry. Their registers include contact details, company profiles, and sometimes additional data such as company size, product/service offerings, or certifications.
Intermediaries and brokers
Find potential acquisition targets through discussing with brokers or intermediaries assigned to sell their client owners’ company. They can offer their expertise in identifying and evaluating potential acquisition targets, conducting due diligence, and negotiating the deal.
Colleagues and personal networks
The oldest way to gather information through colleague discussions and professional networks. Networking can help you gain insights, access niche industry registers, or receive recommendations for relevant sources. It can also deliver fresh news on companies that might have not reached other investors yet.
Industry events
Join industry-specific forums to connect with professionals who might have access to industry registers or valuable company information. Attend industry conferences, seminars, and networking events to expand your network and gain access to a wider pool of opportunities. Discuss with company owners and build industry contacts who can provide insights and connections to potential acquisition targets.
Linkedin Sales Navigator
LinkedIn Sales Navigator can help find information on potential acquisition targets. It allows users to leverage advanced search filters to narrow down their search based on factors such as industry, company size, location, and job titles. This enables identifying companies that align with selected acquisition criteria.
Purchased business intelligence
Using commercial business intelligence data providers will give access to a wider data sets, associated with analytics tools and visualizations to help the decision making process. Purchase large company lists from companies such as Orbis and combine information to find relevant companies to seek further contact with.
Financial data providers in different countries will give access to extensive company information:
- See Financial Data Providers in Germany
- See Financial Data Providers in the UK
- See Financial Data Providers in France
- See Financial Data Providers in Benelux
AI-driven methods to find acquisition targets efficiently
Finding prospective deals from traditional sources can be complex and time-consuming in nature. Acquisition search process can be costly and contain many inefficient parts, including extensive manual desktop search or relying on network’s information.
This means that investors need more advanced methods to draw the information needed to build acquisition candidate lists.
Using AI driven tools is an easy answer to this challenge. They can quickly scan millions of data sources and enable faster identification of potential acquisition targets. With Inven’s tool, finding targets according to your criteria is easy:
- Select geographical focus area
As you've fine-tuned your acquisition target criteria, it's time to apply that same specificity to your search with Inven. Begin by filtering the geographical areas you're interested in. With a database spanning 160 countries globally, Inven allows you to narrow your search to specific continents, countries, states, or even cities.
- Select keywords based on your criteria
Inven enables you to either use descriptive search or specific keywords to discover companies operating within certain niches. The platform goes through each company's website and other associated data points for these keywords, helping you find the perfect matches.
- Select an example company with which you want similar results
If you've already identified some ideal acquisition targets, consider using those as a benchmark. Inven's AI will then search for similar companies having comparable characteristics, thereby expanding your pool of potential targets.
- Export a candidate list for further analysis
Once you hit search, Inven will go through millions of websites and company data points to find you the best matches according to your criteria. This curated list of prospective acquisition candidates can be easily exported - for instance, to Excel - for further analysis.
Inven will analyze millions of company websites and databases according to their written content and build an acquisition candidate list based on what companies actually do.
Inven will combine crucial information on acquisition targets’ ownership, headcount, financial data (Europe region), and other factors into one easy-to-use platform. It will also give you access to important decision-makers’ contact information, so you don’t have to rely on multiple sources.
- Read also tips on how to find business owners' contacts.
Advantages of AI-driven methods
Manual desktop search or relying on networks and industry databases can leave a portion of the market in the shade. AI-powered deal origination platforms leverage machine learning algorithms to identify and match potential acquisition targets based on specific criteria, which ensures visibility to all the potential targets.
Including AI in the deal origination process will:
- Give more width and depth to searches and ensure no source is left untouched
- Gather important market intelligence
- Build a curated candidate list with all the needed information
- Save many hours from desktop research to more productive tasks
AI deal sourcing platforms are unmatched in streamlining the deal sourcing process.
Selecting targets: setting the criteria
Establishing acquisition criteria is an integral part of the scoping process. The criteria may vary based on the investors’ goals, but main criteria include:
- Geographical area: Selected market area, country, or region
- Company size: Different investors prefer companies with different revenue scales and headcount.
- Company industry and technology: What type of company the investor is looking for.
- Company ownership structure: Public, Privately owned, PE backed or family owned.
Assessing the targets: Key factors to consider
Once acquisition candidates are derived from various sources, a further analysis of the potential targets is conducted to find the ones with most potential to advance to discussions with.
Some key factors that investors analyze from acquisition targets’ include:
- Strategic fit and integration potential: The acquisition target needs to align with the target profile and investment strategy. For corporate investors, the company needs to bring novel capabilities and knowledge that align with their strategic goals. Integration potential refers to how seamlessly the target company can be merged or integrated into the acquiring company's existing operations, systems, and culture.
- Market growth prospects: The level of market saturation in the company's operating space to determine the potential for future growth and expansion.
- Long-term growth prospects: The anticipated growth, profitability, and sustainability of the business over an extended period of time in the future.
- Profitability: Company's ability to generate earnings from its operations and therefore sustainable value for its prospective owners.
- Growth rate: Company’s current growth rate and scalability as compared to the industry metrics and trends.
- Legal and regulatory issues: Company’s history of following good governance, and potential changes in the regulatory environment within the industry.
- Market positioning / competitive moat: Evaluating whether the company offers a distinct solution or technology, considering factors such as market saturation, competitive landscape, and the potential for differentiation or synergy with other solutions in the investor's portfolio.
- Unfair advantage of business model: Company’s ability to retain unfair competitive advantage with their unique business model and way of operating that sets them apart from competitors.
- Add-on target potential: Suitability to be acquired as an add-on to an existing platform or portfolio company. Enhancing the capabilities, market reach, or product/service offerings of the acquiring entity.These factors are generally what investors analyze from their prospective acquisition targets. Later on they move on to due diligence and deeper analysis.
Some AI tools, including Inven, collect a vast amount of information such as financials, location, headcount, contacts into one intuitive platform, to make the following analysis as easy as possible.
Engaging with targets and cultivating relationships
After assessment of the key factors within the most potential businesses and a thorough understanding of the company history, their business, industry, reaching out to the founders and owners can need an own strategy in itself.
There are various different ways how to connect with potential acquisition targets and their owners, ranging from attending events to sending emails. If the acquisition target list was built with Inven, investors can quickly find the linkedin profiles and contact details of the owners. This makes it effortless to contact potential companies.
Conclusion
Finding acquisition targets and reaching them can be tricky, but directing efforts to the right tools and most efficient platforms will derive good results.
Investors benefit from Inven’s exceptional capabilities in company search and quick access to company owner contact data.
Inven can serve as a valuable tool to save time in identifying acquisition targets, so that investors can focus on delivering a successful acquisition.
