4 Tips for Taking a Strategic Approach to M&A in 2021

Acquisition can be a powerful tool for accelerating your company’s growth. 2021 may be the year you build on your capabilities, add new services or products, or enter new markets. However, it is important not to get swept away in excitement of a potential deal and remain strategic in your thinking. As you consider growing your business in the new year, here are some tips for keeping a strategic focus in 2021.

  1. Use a demand-driven approach – In our typical M&A process, we have clients pursue markets before researching individual companies. The reason is that selecting the right market is critical to successful growth. The market should have healthy, stable demand for your products or services and be aligned with your overall growth strategy. We strongly recommend selecting a market prior to identifying acquisition targets or potential partners. Without understanding market dynamics, you may be tempted to pursue what looks like a promising opportunity, only to find that the market is in a serious decline.
  2. Develop measurable criteria – Criteria can include growth rate, size, geography, customers, or key players. It’s best to pick five or six key criteria – too few and you won’t cover all necessary aspects, and too many will cause you to lose focus. Begin your research at a high level and then progressively zero in on individual market segments you find attractive as you gather more information. Make sure to use your criteria to remain objective.
  3. Expand beyond the usual suspects – It’s important not to fall back on the “usual suspects” or businesses that are already known to you. There’s nothing wrong with pursuing “usual suspects,” but they should not be your only source of candidates. Turning to these companies alone may mean you are ignoring a whole host of companies that could be strategically valuable acquisitions. Conducting market research will likely help you identify fresh companies that you didn’t even know about. Feel like it’s a good time to speak to an expert?  
  4. Remember the human factor – Acquisitions involve much more than just financial figures. It’s extremely important to develop a strong relationship with owners, especially in privately-held, not-for-sale acquisitions. Many times, owners view their company as their baby and convincing them to sell to you involves much more than just a fat paycheck. Consider the owner’s drivers and motivations. What does he or she really care about? Developing a good relationship with an owner early on in the M&A process will greatly benefit you when it comes to due diligence and negotiations.

Best of luck in pursuing strategic acquisitions in 2021.