(Charlotte, NC – August 1, 2017)
Create a Strategic Portfolio of Targets —
This month we continue our series on six principles for successful acquisitions. Below are additional guidelines to help Corporate Development executives achieve the second principle, “understand probability”.
Create a Comprehensive Pipeline of Targets: Even with the most robust target identification and pursuit process, the likelihood of ever getting to the closing table with your top acquisition target is slim. Therefore, it is imperative to create a comprehensive pipeline of target companies to consider and pursue concurrently in the event your unicorn isn’t for sale.
Consider a Variety of Transaction Alternatives and Business Partners: Instead of solely acquiring businesses to fill a gap, consider a variety of transaction alternatives and business partners.1 While a target may not be interested in selling (or selling at your valuation levels), there may be an opportunity for other types of agreements that can benefit both parties under the right circumstances (e.g. joint ventures, R&D or distribution agreements, growth capital, etc.). Be flexible and consider possible alternatives to the transaction initially proposed.
Consider Multiple Targets and Prioritize: At Pitney Bowes in the early 2000s, Corporate Development would work with the Board to develop a general sense of strategic direction and refine it in a more meaningful way once they looked at actual acquisitions. They would consider more targets than they could feasibly transact upon to better understand and define the right strategy. Prioritizing targets in effect forced strategy and other managerial decisions.2 Taking this approach will mutually reinforce both your acquisition strategy and overall business strategy.
Be Prepared to Wait, but Continuously Develop Pipeline: Just because your ideal target may not be for sale right now or at your current valuation, don’t remove it from the pipeline entirely. The company may be for sale at a later date and valuation metrics can change. Furthermore, don’t let the demands of an active deal suspend efforts to develop your pipeline. Deals can take time to realize. It is important to continuously dedicate time and resources to pipeline management.
Use a Spreadsheet or Database to Effectively Manage Pipeline: Given the complexity of pursuing multiple targets over an extended period of time, create a dynamic database populated with relevant target data and strategic priorities. This tool will help the Corporate Development team track and prioritize targets in a methodical manner.
(1) Deloitte University Press: ‘Corporate Development Strategy’
(2) Harvard Business Review: ‘Rules to Acquire By’