Screening Acquisition Targets
President and CEO, CSSP, Inc.
We've talked, in other articles, about the factors that you should consider when selecting acquisition targets. In this article, we will discuss the actual process of acquisition screening and give you some tools to make the process easier.
Once you have identified your reasons for making an acquisition and the specific enhancements you are seeking to your strategic competencies, your first stage of acquisition screening involves creating a list of potential acquisition targets. At this point, we don't need to know much about the targets except that their acquisition is a possibility, and their strategic resources may include the desired assets or competencies we are seeking in our acquisition.
Having established this list, some quick evaluations can be made without a great deal of homework. Using page 2.1 Potential Acquisition Worksheet, you want to capture six data points about each possible target: Name, Sales, Ownership, Competency Enhancement, Asset Value and Probability of Success. For sales, we want your best estimate of the net sales of the target company. Don't get too involved in the exact numbers right now, if you don't have them -- a guess is fine for our purposes here. At this point, we are simply looking to screen out targets that are so large that their acquisition would overtax our financial resources, and we will be looking for much more specific data later in the process. Ownership should simply identify whether the target is public, private, held by a private equity group, family owned, entrepreneur owned or employee owned. This will help us think through the probability that the target may be sold for certain specific reasons. After the first three items, the rest will all require some assumptions on the part of your team. Competency Enhancement is a simple evaluation of how much you think the target will add to your own strategic competencies -- on a scale from one to ten. A one should indicate a very small level of enhancement -- for example, the availability of employees who could be re-trained to work in your core business -- while a ten should indicate very strong enhancement, such as skills or processes that would create huge value by filling in critical gaps in a larger strategic competency you are building in your core business. Asset Value is also a 1-10 scale rating of the value of the target's assets -- including fewer tangible assets, such as intellectual property and brands, to your core business. Probability of Success is your estimation of how likely it is (on a scale of 0-100%) that you would have a successful integration of the target with your company, if you decided to acquire that company and the owners agreed to sell.
Using this approach, you should be able to develop excellent data on the strategic fit offered by a number of acquisition targets. In my next article, I will discuss how to use that data to narrow down the field of targets and focus your efforts on the best targets.
Robert Bradford is President and CEO at the Center for Simplified Strategic Planning. He can be reached at