How to acquire better
Eight techniques leading to five deliverables for acquirers
We call this the ‘optimal deal ecosystem’ where everything we do is designed to produce interconnecting benefit flows to lead to concrete deliverables which together lead to capturing the best target company at the best price. Few firms connect their actions throughout the M&A process to deliverables that feed into goals in this scientific way. As practitioners of ‘advocacy M&A’, there is nothing we do that has not been reverse-engineered to result in our acquirer client’s advantage.
Hunter toolbox
Stronger negotiation advantage & find bargain
Deliverables
Investing with confidence
STRATEGY
1
2
3
4
IMPLEMENTATION
5
6
7
8
More deal flow
Closer relationship with targets
More opportunity from different geographies & sectors
More deal flow combined with value for money
Not missing the optimal partner
More time to evaluate synergies
Owners often trade price when they see strategic fit and develop trust
Quasi-exclusive relationship helps eliminate competitors
Make more investments
Open new markets
Strategic expansion
Match with deeper synergy
Enjoy benchmarking visibility
Avoid auction prices
Value for money
Strategic fit
Valuation
Note: The chart is focused on the proprietary tools other firms don’t provide. Of course, we continue to support clients after step 8 (Joint Business Planning) with negotiation, LOI, project management of SPA and due diligence, and rescuing a deal, as needed, through to completion.
We’ve developed an integrated set of methodologies to give an acquirer an advantage in the market, to result in transactions with better value for money and success in strategic expansion.
Our four ‘strategies’ lead to more deal flow and our four ‘implementations’ lead to advantageous relationships with target companies.
Each of these benefits changes the power balance to complete more transactions, open new markets, deliver deals with deeper synergy, benchmarking visibility and avoid auction prices.
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Our tools result in clients expanding strategically in transactions that have value for money. We can thus fulfil our M&A mantra: “It’s better to buy great assets at a fair price than fair assets at a great price.”
We call this 'the1 Optimal Transaction Ecosystem', because everything is designed in a dynamic way to deliver multiple advantages to an acquirer's shareholder value.
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The eight tools of strategy and implementation
Strategy phase covers identifying target companies through to getting in the door. We use a ‘leave no stone unturned’ approach throughout the strategy phase - it applies to not missing any companies in the initial research of potential targets and also not giving up on trying to open the door with relevant targets.
1. Deep criteria analysis​​
Our goal in the first step is not just to receive a shopping list from our client. Instead, we wish to understand the logic for their wish list, prioritise the different elements as ‘nice to haves’ versus ‘must haves’, and often also challenge our client with the result that the understanding gets finetune in discussion. We often do this through the lens of the five basic business dimensions we use as a taxonomy to categorise the profiles of companies in the human capital sector.
5D classification of client criteria
Collection:
We engage in an acquisition criteria discussion with our client to produce a 360-degree view of the whole mission.
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This view covers many aspects such as:
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Profile according to our 5D taxonomy
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Strategic: known synergies sought or other deal goals
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Cultural: operating culture/ambition, and culture of owners if there is openness to shared ownership
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Price and pricing: valuation parameters, funding/deal size parameters
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Motivation & control parameters including deal structure policy
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When multiple target profiles are being sought by our client, the criteria of many elements will need a customised approach. In such cases, we use either a matrix or separate analysis for each mission.
Challenge:
We sometimes call this ‘corporate soul searching’ because it puts our client into the situation of having to decide what is really important. It can translate a ‘wish list’ into a ‘need list’ and then into a ‘feasible list’. We may challenge our client criteria on issues such as:
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‘Match population’: sometimes the criteria is so exacting that we advise there will be insufficient target companies to give a reasonable chance of a transaction or one at a fair price
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Price elasticity based on qualities or shortcomings
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Criteria elasticity in general based on good ROI opportunities that fall outside the criteria
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Individual criterion prioritisation: often qualifying answers to each of the five dimensions will have different degrees of importance
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Mission prioritisation: in cases where the client has multiple acquisition missions
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Once agreed with our client, we will be in a position later to overlay the criteria onto opportunities with each being classified according to exactly the same format for accurate matching.
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Although the criteria are then confirmed for the process to continue, it will be iteratively amended when we later engage with concrete targets since our client usually refines preferences and priorities accordingly.
We believe that before contacting any target, it is critical to try to identify every target in the market that could satisfy the criteria. We call this our 'Total Universe' approach. It is based on the idea that any company could be for sale and we should not exclude any potentially suitable targets until we have investigated and contacted them.
We only exclude companies when we have sufficient info to know that they fall outside the critical criteria.​​
2. 'Total Universe' attitude
Example of a 'Total Universe' process
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3. Target scoring
We start the process of ranking targets based on how closely they satisfy the criteria from the initial info we have available. We often use a traffic light system to indicate the likelihood of a deal with each target company.
Ranking is always an iterative process based upon 3 factors: 1) new info we obtain about targets during the deal process, 2) from comparing the relative suitability of different targets, 3) sometimes client amends the criteria as the assignment proceeds. ​​​​
4. 'Opening the door' skills
We pride ourselves on being able to open a high percentage of doors using a combination of determination (not giving up) and creativity (finding solutions to catching target companies’ interest) and persuasion (a range of techniques we have developed to persuade companies to let us have an exploratory discussion with them).
We also use our role as a third party to engage in initial conversations without the pressure of the target having to agree to meet the acquirer in the first contact.
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While opening the doors, we always make sure we show the 'Buyer Beauty' to the target companies - we help ensure the client's strategy, integration plan and deal structure are all seen by target companies as logical and not intimidating. A well-presented client will be more attractive to target companies, resulting in more interest and a lower purchase price.
We start the linking process by following a 1-on-1 approach where the focus is on developing a close trusting relationship with each target company and also working with them on a tailored basis that takes into consideration their individual attitude, worries, goals and timings.
This approach starts from the first contact and runs through the entire linking phase through to signing the LOI and to completion.
Our techniques of creating an environment through our actions and our client actions, coordinated together, in which the benefits of 1-on-1 M&A flow.
The benefits of our 1-on-1 ingredients
Note: In 1-on-1 M&A the owner is not a seller or even necessarily wants to be a seller at the start of the process. That’s why we use word owner rather than seller until the deal completes.
5. Our 1-on-1 techniques​
When analyzing owners as potential targets for our client, our experience shows that an owner can fall into one or more profiles, our experience shows that an owner can fall into one or more profiles. We pride ourselves on being able to ‘get inside their mind’ – to explore the owners requirements and goals. We then use this sensitivity and insight throughout the M&A process to find a win-win solution (including deal structuring) to make our client’s proposal more attractive to the owner’s needs without being more expensive on a net basis to our client. It also helps us tailor the entire 1-on-1 M&A process more effectively.
We have summarized our experience-based analysis of owners' mindset into the following 5 categories:
6. Owner mindset analysis
​We have discovered that unless there is a good relationship between clients and owners, completion of a deal is very unlikely to occur. This is because of the frustration for both parties in the long deal process including negotiation of economics, legal agreements, the often arduous deal process itself including the impact of delays on one party or another. All can lead to a breakdown in the transaction. If there is a good relationship, these bounces on the road can often be solved.
We pride ourselves on being able to understand the values, visions, and personalities of the principles of both parties in the transaction as well as what they would look for in being able to trust a counter-party. Positive matches according to this analysis can be taken into consideration in prioritisation or exclusion of targets. Negative matches can be identified to our client with warning that the deal has a lower chance of success.
The types of things which are often relevant to consider are attitudes such as:
7. Cultural fit analysis
Joint Business Planning is the best way to investigate whether a target company has a strong strategic fit, allowing us and our client to start quantifying the impact synergies may have on pro forma EBITDA. Having this information prior to negotiation allows our client to price offers more accurately, avoiding overpaying and also avoiding losing opportunities by underpricing.​
In cases where the seller will be offered upside based on the synergies, JBP can be a powerful way to attract the sellers, limit upfront valuations and persuade them it is logical to accept an offer.​
JBP has other by-product values such as: an early view on operational integration feasibility, and an early view of the cultural fit between management teams.
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The process tends to attract owners who care about how the target will fare post-transaction and also differentiates our client which feeds into our 1-on-1 M&A Technique to keep the company out of an auction process. ​​​​
