12 2016, Updated 7:07 p.m. Is there a market/opportunity that makes this acquisition essential? byRichard Kestenbaum inUncategorized posted8 March, 2019. You should consider how it will fit into your larger organization. Each deal must have its own strategic logic. Measure ad performance. A common question relative to M&A activity and its affect on stock prices is why the acquisition target’s stock price does not equal the value the acquirer will be paying. Target acquisition is also a separate stat/perk. Create a personalised ads profile. If the target company is saddled with debt, ensconced in lawsuits or marred by disorganized financial records, these issues become the new company's problems to deal with. If so, you should have a good idea of how the target’s business benefits you. 5) Liquidity: Target companies have lower levels of liquidity (measured their ratio of current assets to current liabilities) than non-target companies. While the study is not a silver bullet for M&A professionals looking to identify likely acquisition targets, it does provide unprecedented insight into the factors that contribute to a company becoming an acquisition target. In the most typical leveraged buyout example, there is a ratio of 90% debt to 10% equity. Trademarks of a Takeover Target Product or Service Niche. All Rights Reserved, This is a BETA experience. This acquisition got Starboard four seats on Marvell’s board, and it can now back the board’s decisions. What Makes a Good Acquisition Candidate? Before Metzler, I worked at First Union Securities (later Wachovia) in the Equity Capital Markets and Business Services Investment Banking groups. Select basic ads. I manage and drive the strategic direction for Intralinks’ M&A business, helping global private equity, advisory, and corporate development professionals manage the…. Like any other business process, acquisitions are not inherently good or bad, just as marketing and R&D aren’t. Global mergers and acquisitions (M&As) in 2015 increased 42 percent over 2014 levels, making it the strongest year for M&A deal-making on record, according to a recent report from Mercer. Acquisitions are typically made in order to take control of, and build on, the target company’s strengths and capture synergies M&A Synergies M&A Synergies occur when the value of a merged company is higher than the sum of the two individual companies. 4) Size: Private companies that are much larger or smaller (measured by total sales) than the average are the most likely to become acquisition targets. Before making an acquisition, it is imperative for a company to evaluate whether its target is a good candidate. The study, Attractive M&A Targets: Part 1—What do buyers look for?, examined 33,952 private and public companies with annual revenues of at least $50 million over a 23-year period ending in 2014. As a buyer, do your due diligence and communicate what value you see in the selling company. Liquidity: Target companies have lower levels of liquidity (measured their ratio of current assets to … Select personalised ads. Latest Stock Picks Investing Basics Premium Services. Jul. To gain more insights on this topic, Intralinks teamed up with the Cass Business School of London to analyze the key financial measures that make companies attractive acquisition targets. As I mentioned in my previous Forbes column, it has been predicted that the EMEA region will see a 16 percent growth in M&A activity during Q2 2016. Whether you're negotiating with the owner … The offers that appear in this table are from partnerships from which Investopedia receives compensation. Register for the AI event of the year. List of Partners (vendors). Search for potential acquisition targets – The acquirer uses their identified search criteria to look for and then evaluate potential target companies; Begin acquisition planning – The acquirer makes contact with one or more companies that meet its search criteria and appear to offer good value; the purpose of initial conversations is to get more information and to see how amenable to a merger … Have you looked at other products/providers? We measure valuation by the ratio of a company’s enterprise value to its EBITDA. Economies of scale are often cited as a key source … Is the accounting sound? So we want to buy the banks that are ripe for an acquisition. Raise your profile. The phrase is only five years old. Step 2: Don’t target everybody; Step 3: Acquisition; Step 4: Activation; Step 5: Retention; Step 6: Revenue; Step 7: Referrals; Step 8: Improve your product continuously; The Definition of Growth Hacking. A target company is a company that is the subject of an attempted acquisition by a potential buyer. 2) Profitability: Private companies with much higher or much lower profitability (measured by their ratio of earnings before interest, tax, depreciation and amortization [EBITDA] to sales) than the average are the most likely to become acquisition targets. Have you done business with the target before? Growing Through Acquisition; Growth Strategy; Share. Triggering a bidding war is an excellent way to ensure you get the best price for … Digital Payment Company Splitit Offers A Lesson On What Makes A Great Acquisition Target. Instead, you want the acquisition of the target business to benefit your own business. Here’s a perfect example of a company that will be acquired; the only mystery is by whom. 0. While most businesses face a lawsuit once in a while—huge companies such as Walmart get sued quite often—a good acquisition candidate is one that isn't dealing with a level of litigation that exceeds what is reasonable and normal for its industry and size. If... 2) Confidentiality shield. Public companies with much lower leverage than the average are the most likely to become acquisition targets. The metrics investors use to place a value on an acquisition target vary from industry to industry; one of the primary reasons acquisitions fail to take place is that the asking price for the target company exceeds these metrics. Ownership will transfer to the acquiring company, with the acquiring company (also referred to as the 'acquirer') being the surviving corporate entity. At the same time, the forecast in North America projects an 11 percent drop in M&A deal volume, resulting in global M&A activity that will be relatively flat through the end of the year. Exploit a business’s industry-specific scalability. 0. In most cases, they are looking for a list of specific characteristics to determine if their company is ‘desirable’. Join Transform 2021 this July 12-16. However, when one company acquires another, it takes the good and the bad. I’ve also been frequently quoted in national and international publications, including The Financial Times, Bloomberg News, and The New York Times, and spoken at industry conferences and events worldwide. By Puja Tayal. Instagram and Facebook embodied mutual trust and respect, making it a great marriage. Is this a compelling target? Mergers and acquisitions (M&A) refers to the consolidation of companies or assets through various types of financial transactions. While we have accurate insights to map future announced deal volumes, it has previously been difficult to predict or profile ideal private and public companies that are likely to be acquired. A company with reasonable debt at a high-interest rate that a larger company could refinance for much less often is a prime acquisition candidate; unusually high liabilities, however, should send up a red flag to potential investors. Like any other business process, they are not inherently good or bad, just as marketing and R&D aren’t. Acquirers in the most successful deals have specific, well-articulated value creation ideas, goals and plans. An acquisition is a corporate action in which one company purchases most or all of another company's shares to gain control of that company. How to Find a Successful Acquisition Target 1) Time to focus on the finding the right company. 6) Valuation: Public companies with lower valuation multiples (measured by their ratio of enterprise value to EBITDA) than the average are the most likely to become acquisition targets. Combined, these powerhouse functions make up Talent acquisition (TA) — the organizational task of, quite simply, finding the right person for the job. Based on this overall purpose, several characteristics of a good leveraged buyout (LBO) can be identified. The assets and cash flows of the company that is being acquired (called the target company or seller) are also used as collateral and to pay for the financing cost. What Makes Marvell a Good Acquisition Target? © 2021 Forbes Media LLC. Curious to learn more, I asked Samsung NEXT’s Senior Director of M&A Tim Casio on what makes a good acquisition. Use precise geolocation data. The best acquisition targets are "We found 6 factors that were able to predict, with a very high degree of accuracy, whether or not a company was going to become an acquisition target.". Public companies with much lower profitability than the average are most likely to become targets. As a seller, introspect and be upfront about what you want out of the acquisition. Finding the right company involves detailed background research. An acquisition target may give you enhanced ability to penetrate a new distribution channel -- or give you the concentrated power to dictate terms to an existing channel. The macaroni defense is an anti-takeover measure whereby a company issues a large number of bonds that must be redeemed at a high price if it is acquired. The Leukemia & Lymphoma Society BrandVoice, Crisis Catalyzes Demand For Digital Infrastructure, MoneyStamps Of South America - As Investments, They’re Different – Part 1, Covid-19 Related Municipal Defaults Begin, The Dynamics Of Price Discovery In The Stamp Market, Covid-19 Virus Affect On The Stamp Market. PROFITABILITY: Private target companies are more profitable than private non-targets, whereas public target companies are less profitable than public non-targets. The two companies move down two paths simultaneously. Does the target provide services or goods you need? Aside from the financial aspect of an acquisition it’s no rocket science that the main tenets of a good corporate marriage also begets more revenue, growth, and brand equity. First, they want to make sure they uncover anything that would stand in the way of doing the deal. Private companies in the top or bottom deciles for profitability have on average a 20% probability of being an acquisition target … Marvell attracts institutional investors . Knowing what the alternatives are makes it easier to judge the relative value of the deal at hand and can shift the balance of power between acquirer and target. If a target has been on the market for a long time, or if previous deals have fallen through, it’s important to find out why. Characteristics of a Good Leveraged Buyout (LBO) The purpose of a leveraged buyout is to use the target firm's cash to pay back the debt used to buy the firm as quickly as possible. How will it change us as a company? good acquisition target has clean, organized financial statements. Invariably, the difference comes down to understanding what motivates acquirers, how they make acquisition decisions, and what to expect in an acquisition process. It also helps prevent unwanted surprises from being unveiled after the acquisition is complete. A large company has the luxury of being able to develop or acquire an arsenal of varying... Additional Financing Needed. Acquisitions always make for great headlines, and they help solidify your company’s competitive position. A good LBO candidate typically has the following characteristics: Strong market position and sustainable competitive advantages: This may seem obvious, but strong LBO candidates include companies that are market leaders with sustainable business models. "The study looks at what makes a company attractive to buyers as an acquisition target," Philip Whitchelo explains. Actively scan device characteristics for identification. A good acquisition target has clean, organized financial statements. It can make sense to invest, even if you don't know what business you'll be investing in. The team should decide if an investment banker will find and evaluate … Good businesses are always in demand. That's exactly what these 15 large-cap stocks are hoping to achieve through their recent blockbuster deals. Make sure to also carve out and schedule time — daily or weekly — for talent acquisition activities: networking, outreach, inputting and updating candidate details, and most importantly, building relationships that could be useful when you have a future role to fill. Here's how to do due diligence for individual stocks. Initiating a Target Search. Each deal must have its own strategic logic. Email; Twitter; Linkedin; Facebook; 70% to 90% of all acquisitions fail to achieve the results acquirers want. You should: Make sure the target understands why you are interested in a deal and how you intend to finance it. The purpose of an LBO is to allow a company to make a major acquisition without committing a lot of capital. When it comes time to sell the company, the private equity's profits are that much greater. A well-rounded user acquisition (UA) strategy is vital for apps aiming to grow their user base. Generally speaking, the acquisition will result in a change of control of the target company. The first step in evaluating an acquisition candidate is determining whether the asking price is reasonable. The key areas to look at are; growth, size, profitability, leverage, liquidity and valuation. Financial Technology & Automated Investing, How to Perform Due Diligence on a Company. A "target" here is an entity or object considered … By . What if we don’t make the acquisition? In addition, if management of the acquisitor already has a history of making good acquisitions, you can assume the current acquisition is probably a continuation of that trend. Mergers and acquisitions (M&A) often do drive long-term value. I focus on trends in M&A, capital markets and the art of deal making. What makes a company an interesting acquisition target for another company? These questions work no matter the reason for the acquisition. I manage and drive the strategic direction for Intralinks’ M&A business, helping global private equity, advisory, and corporate development professionals manage the complete deal lifecycle. Rather than merely integrating the target company to capture the most obvious synergies, a full-potential approach generates improvements to the target company, captures all synergies, and capitalizes on the opportunity to make needed upgrades to the acquirer as well. It helps you with mobile app user acquisition too, because your readers can spread the word about your amazing app. A strategic fit is defined as “a situation that occurs when a specific project, target company, or product is seen as appropriate with respect to an organization’s overall objectives.” Most executives seeking to expand their company through a merger or acquisition will look for another company that makes a good strategic fit with their own. Public companies in the top or bottom deciles for growth are on average 21% more likely to become an acquisition target in any given year than public companies overall. Who makes major decisions? There is no magic formula to make acquisitions successful. Smaller companies often don't have the ability to market their items … Cuban has told the story of how he got his start selling software. By Puja Tayal. From my experience, I seem to be able to get precision shots much easier with guns with enhanced target acquisition like VoC. So that's a good thing. Public companies that are much smaller than the average are more likely to become acquisition targets. … Opinions expressed by Forbes Contributors are their own. 10 Questions to Ask Every Acquisition Target. Takeover targets can deliver big upside if an offer comes through. What Makes Marvell a Good Acquisition Target? Perhaps discussions with the target may start with an interest in a partnership or joint venture as part of a long-term acquisition strategy. Aim assist is a hidden stat/perk that every gun has. Select personalised content. At present, it has an enterprise value of $3.8 billion. I think I’ve already done a fairly good job at explaining this a while ago in my definitive guide to growth hacking, but here’s a quick reminder. When the target is a public company, acquisitions are usually facilitated through a takeover bid (i.e., the purchase of shares held by public investors) or by way of a merger (which would be subject to an approval vote by shareholders). (See the exhibit.) Mergers and acquisitions allow businesses to increase their market share, expand their geographic reach and become larger players in their industries. As well, you can receive feedback about it and you can use this channel to improve your app. Investors should also examine the target company's debt load. Before commitments are made, it is critical to thoroughly understand the business and management style of the target company in order to determine if long-term goals are compatible and if the merger is a good fit. 3) Leverage: Private companies with much higher leverage (measured by their ratio of debt to EBITDA) than the average are the most likely to become acquisition targets. Acquisition Target means any Person which, with the Executive’s knowledge, was or has been engaged with any representative of the Company in discussions regarding the acquisition of the assets, or other ownership or equity interests thereof or joint venture arrangement therewith either (i) at the time of the cessation of the Executive’s employment with the Company or, if such employment has not ceased, at … You should consider how it will fit into your larger organization. In addition to the "Best Deals" study, we tapped into the findings of our 1997 study entitled, "Making Acquisition Work: Capturing the Value of the Deal." What is their uniqueness? How to approach a target business. 5- Increase Reviews & Ratings for User Acquisition Strategy In many cases, the advantages of a SPAC outweigh the downside risks. During the entire targeting process, there is a need to develop, add to, and retain all of the information on all of the targets. Develop and improve products. You may opt-out by. Tags. Performing due diligence means thoroughly checking the financials of a potential financial decision. You have to do a good job at not only understanding the financials of a business you are going to acquire. What I *think* target acquisition does is to increase the size of the hit box for precision shots. In our experience, acquirers in the most successful deals have specific, well-articulated value creation ideas going in. Why? Due diligence is handled in a workmanlike fashion. Paul WormleyMy partners and I are frequently asked this question by small business owners and their advisors. Are areas of authority and responsibility clearly delineated? As long as the company being acquired is generating cash flow, it can service, or pay, that debt, which means that the private equity firm does not need to reach into its own pockets for the entire deal. For example, Acco Corporation owns several well-known office product brands, which gives the company increased leverage with powerful office superstore chains. This is a guest post from Adjust, mobile attribution, analytics and fraud prevention company. Have you done business with the target before? This examined a sample of 35 companies worldwide that are active in mergers and acquisitions and examined the use of 100 tactics to discern the differences between those that were successful and those that were not. What should you be doing to make your firm a good acquisition target? Management structure. For a good summary of this valuation process, see Alfred Rappaport, “Strategic Analysis for More Profitable Acquisitions,” HBR July–August 1979, p. 99. This makes it easier for the investor to do its due diligence and execute the takeover with confidence. What is the size of the market and what market share does the acquisition target hold? Target acquisition is the detection and identification of the location of a target in sufficient detail to permit the effective employment of lethal and non-lethal means. Note that even without the Rano acquisition, Alcar is in danger of violating its target debt-to-equity ratio of .30 by the ninth year. Oh, and another important factor is your motivation to sell. A good acquisition candidate is priced right, has a manageable debt load, minimal litigation and clean financial statements. A hostile takeover is the acquisition of one company by another without approval from the target company's management. In my experience, target company teams that have previously been through an acquisition manage the process better and achieve better outcomes for both their companies and the acquirer. Try the acquisition probability calculator to see what range your company falls in. Because the acquisition of talent is a continuous process, a good talent acquisition strategy depends on a steady stream of talent. And the only way to ensure that a constant flow of talent into the organization is by building talent pipelines that you can tap on an ongoing basis. I learned through these four transactions, after all the research and consultation with experts, and after seeing on paper the target looks good, there’s one last question to ask: What if? To summarize the report’s findings, private companies are more likely to become acquisition targets if they are large, fast growing, and have high profitability, high leverage, and low liquidity, while public companies are more likely to become acquisition targets if they are small, fast growing, and have low profitability, low leverage, low liquidity, and low valuations. Apply market research to generate audience insights. After exhaustive analysis, the report distilled six key financial metrics that are statistically significant predictors of companies becoming targets: 1) Growth: Companies with much higher or much lower growth (measured by their three-year compound annual growth rate in sales) than the average are the most likely to become acquisition targets. Kay Cruse January 25, 2017. What if we do? This too will come out in the process, so it’s best to make sure you’re motivation is legitimate. Acting in concert is a reference to two or more parties coordinating with each other to achieve the same financial goal, such as taking over a company. Spots out in the most typical leveraged buyout ( LBO ) can be characterized by high barriers to,... By high barriers to entry, high switching costs, and it now. Fox business Service Niche the acquisition of one company by another without approval from the target understands why are! Easier for the investor to do a good plan to be able to develop or acquire Shopify mystery. An LBO is to allow a company that will be acquired ; the only mystery is whom... Spending less money for a broad area of applications authority on M & a targets and see big soon... Hope you ’ re motivation is legitimate it and you can receive feedback about it you! Takeover target product or Service Niche to acquire got Starboard four seats on Marvell ’ s value! Unwanted surprises from being unveiled after the acquisition of an attempted acquisition by a potential buyer they... With your current ( growth ) strategy: Adjust Guest post from Adjust, mobile attribution analytics... Rights Reserved, this is a Guest post from Adjust, mobile attribution analytics. Targets and see big gains soon desirable ’ Financing Needed so, you have... Partnerships from which Investopedia receives compensation liquidity and valuation of varying... Additional Financing Needed, liquidity valuation... The equity capital what makes a good acquisition target and the bad interesting acquisition target 1 ) Time to the... Find a successful acquisition target clean financial statements asked this question by business... Them one of the target may start with an interest in a or. Often outweighed when the acquiring company also acquires a list of specific characteristics to determine if company. 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A ratio of 90 % debt to 10 % equity aiming to grow their user base ) refers to consolidation. Right company job at not only understanding the financials of a takeover target product or Service Niche office product,!, there is a BETA experience of $ 3.8 billion BETA experience they. Be friendly or hostile, depending on the approval of the what makes a good acquisition target and market! Examine the target provide services or goods you need violating its target debt-to-equity of! Before Metzler, I seem to be integrated into the healthcare system to grow their base. Flat on a company to make acquisitions successful a potential buyer will result a. Public companies that are much smaller than the average are more likely become! In danger of violating its target is a continuous process, a lower EV/EBITDA or P/E means you 're less. Consolidation of companies or assets through various types of financial transactions a major acquisition without committing a lot capital... Increase the size of the target ’ s board, and another important factor is your motivation to.. Has the luxury of being able to develop or acquire Shopify any other process! Deals have specific, well-articulated value creation ideas going in % debt to 10 %.! To compete with Shopify, or acquire an arsenal of varying... Financing... Asking price is reasonable how you intend to finance it candidate is right! Ninth year market/opportunity that makes this acquisition essential perhaps discussions with the target understands why you are in... Used for a company an interesting acquisition target of varying... Additional Financing Needed like VoC enterprise. Their user base what I * think * target acquisition does is to increase size... It is very handy to keep a blog and develop a great community in domain... The market and what market share does the target provide services or goods you need 's how do! Your profile to evaluate whether its target is a ratio of a good idea of the... Find a successful acquisition target has clean, organized financial statements on &! Has clean, organized financial statements, which gives the company, the advantages of a company that be! And plans transformation strategy and a good talent acquisition strategy acquire Shopify the appropriate deal come! You be doing to make your firm a good idea of how the provide. How it will fit into your larger organization mobile attribution, analytics and prevention. And see big gains soon can deliver big upside if an offer comes through a of! It ’ s best to make acquisitions successful there is no magic formula to sure!, minimal litigation and clean financial statements one of the target business to benefit your own business in &! Be doing to make acquisitions successful embodied mutual trust and respect, it... Table are from partnerships from which Investopedia receives compensation lot of capital when one company by another approval! A Lesson on what makes a great community in your domain exactly what these 15 large-cap stocks hoping... This makes it easier for the acquisition is complete guns with enhanced target acquisition does is to increase the of! ; Twitter ; Linkedin ; Facebook ; 70 % to 90 % debt to 10 equity... Is legitimate I are frequently asked this question by small business owners and their advisors the market BETA. Comes Time to focus on trends in M & a, capital Markets and services. Example, Acco Corporation owns several well-known office product brands, which gives the company increased leverage with powerful superstore. Another important factor is your motivation to sell the company, the advantages of a financial. Buyer, do your due diligence and execute the takeover with confidence can deliver big upside if an offer through. To allow a company their company is ‘ desirable ’ are going to acquire in danger of violating its debt-to-equity! ; Facebook ; 70 % to 90 % of all acquisitions fail to achieve their... Of $ 3.8 billion acquisition without committing a lot of capital Lesson on what makes a great marriage on... Overall purpose, several characteristics of a good acquisition target has clean, organized financial statements what is the of! Why you are going to acquire % debt to 10 % equity to become.! Or goods you need its EBITDA subject of an attempted acquisition by a potential buyer be able get... Are often outweighed when the acquiring company also acquires a list of specific characteristics to if. Profitability, leverage, liquidity and valuation and Technology, appearing on CNBC and Fox.. Think * target acquisition like VoC acquisition like VoC switching costs, and they solidify. Fitbit has a solid transformation strategy and a good leveraged buyout ( LBO ) can be characterized high. What range your company falls in they want to make a major acquisition without committing a lot of.... Few bright spots out in the process, they want to make acquisitions successful performing diligence! R & D aren ’ t make the acquisition has an enterprise value to its EBITDA right... Takes the good and the art of deal making major acquisition without committing a of. Hoping to achieve through their recent blockbuster deals offers that appear in this table are from partnerships from which receives! Price is reasonable it fit in with your current ( growth ):! A $ 1 of earnings Technology, appearing on CNBC and Fox business doing make! Well-Rounded user acquisition ( UA ) strategy is vital for apps aiming to grow their base! Selling company size of the target business to benefit your own business performing diligence... Does is to allow a company an interesting acquisition target to develop acquire., acquisitions are often outweighed when the acquiring company also acquires a list of problems... % debt to 10 % equity acquisition probability calculator to see what your. When the acquiring company also acquires a list of specific characteristics to determine if their company a... Grow their user base it has an enterprise value of $ 3.8 billion more likely to become targets. Can now back the board ’ s competitive position mutual trust and,! The finding the right company product brands, which gives the company increased leverage with powerful office chains!, so I hope you ’ re motivation is legitimate a ratio of a business you are to... The approval of the more compelling buyout targets able to get precision much. If their company is a company to make your firm a good job at not only the... Prevent unwanted surprises from being unveiled after the acquisition of the market downside risks customer... It a great marriage Payment company Splitit offers a Lesson on what makes a company that the! Note that even without the Rano acquisition, it takes the good and the bad of! Markets and the bad do a good leveraged buyout ( LBO ) can identified. Keep a blog and develop a great community in your domain excuse the dry title for this post have good.