Going with Your Gut: A Common M&A Mistake

“We’ll know it when we see it,” many leaders say when asked to define their ideal acquisition. Unfortunately, this approach is a recipe for disaster. How will you know if it is the right company for acquisition based solely on your gut instinct? This is not how we, as business leaders, approach other decisions so why do so many approach M&A this way?

Think about it: You don’t hire whoever happens to knock on your front door asking for a position. Instead, you write a job description based on your company’s needs and measure potential candidates against the description. If you are looking for a sales person, you wouldn’t hire a finance expert instead, no matter how qualified they were.

If you search for acquisition candidates with no criteria in mind means there is a high chance you will be unfocused or ineffective. You also run the risk of acquiring the wrong company and fulfilling none of your growth goals if you rely too heavily on first impressions.

A better way to approach acquisitions requires a bit more upfront work, but leads to a higher rate of success. Before you even begin looking for acquisition candidates you should define your ideal acquisition markets and candidates using measurable, objective criteria. Pick four to six important criteria to focus on and develop quantifiable metrics for each one. Write these attributes down so everyone has a copy so that you all have an objective standard for measuring every market or prospect. This will prevent you from getting too emotionally attached to a company simply because it seems like a good idea. Instead, you will have to use data to prove (or disprove) the strategic fit.

Using criteria to make decisions doesn’t mean acquisition should be completely devoid of emotion. Naturally your experience will (and should) come into play when analyzing and evaluating each opportunity, but it should not be your only guide. Start with your ideal and then try to find a company that matches closely so that you can achieve your strategic growth goals.

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