Why You Don’t Want a List of Companies

I was on a call with a prospective client when he asked a question I frequently hear: “Will we get a list of companies we can look at to acquire?” It’s a common misconception that your objective in hiring an M&A consultant is a long list of for-sale acquisition prospects.

I strongly caution against this approach. Too often business leaders listen to whoever comes to lunch, size up whatever opportunity comes across their desk, and then get caught in the lure of the most appetizing deal. The longest list of for-sale companies may not include a single one which truly matches your strategic vision.

Acquiring the wrong company is an expensive mistake.

A few years ago, my firm had a client in the health services industry that was persuaded to acquire a manufacturer of nurses’ uniforms that happened to be for sale. The target company was losing money, but the CEO was persuaded that she could easily turn it around and generate a profit. Twelve months later, the acquisition had become a disaster. Our client had inherited a lawsuit, serious absence of sales aggressiveness and unexpected trade restriction. What was missing can be summed up in one word: strategy. We encouraged our client to adopt a strategic approach.

Generating a list of companies may seem like the correct approach, but ultimately your goal is to successfully acquire one company that meets a specific strategic need. Finding the right company that fits with your growth strategy means first of all knowing what that strategy is. Then you go in search of exactly the prospects that match your goals, without regard for who is, or is not, “for sale.” The reason? As I’ve often noted in this blog: every company is for sale for the right equation.

The strategic approach to acquisition takes time, skill and thorough research. And yet it gives you the fastest track to a profitable result.

*This post was adapted from David Braun’s Successful Acquisitions, available at Amazon.com

Photo Credit: sunshinecity via Compfight cc