On many occasions, company directors may choose to grow through an M&A process without having chosen the target company. The way to identify the viable companies in the plan to be developed, and subsequently, the selection of the target can be an arduous task, however, it is the watershed of the success of the operation and therefore does not depend on the commitment of a single person, but of the entire team of directors.
In the process of identifying possible candidates, first, the intentions and objectives of the company itself must be defined, following by the search and selection criteria in order to be able to carry out an adequate investigation of a small group of candidates. It is clear that the answers to the first two steps vary with each company since in each of the M&A operations there will be options, inalienable financial minimums, and different compliance requirements.
Now, to obtain certainty about the first of the steps, that is, the delimitation of the objectives, taking into account that there are different types of M&A operations according to their nature, it must be decided in which industry it is intended to get involved or failing that, continue. In the event that the answer is related to the involvement in a new industrial sector, the reasons behind the choice must be thoroughly understood, which may have to do with a relationship between an industry already covered with the one intended to start in, the commitment to a different and innovative branch of products or services or the direct or indirect defense of the competition. Whatever the reason, the benefits to be obtained and the growth expectations must be made clear. On the other hand, if a company wishes to continue in the same industry, the possibility of opting for internal growth must also be analyzed and afterward known that opting for a merger or acquisition results in the greatest economic benefit. Finally, once the industry has been concluded, decisions must also be made regarding the type of products or services and the market to be established, whose motivations may go hand in hand with those existing around the decision regarding the industry.
Once the ground is clear with the answers to the previous questions, it is necessary to proceed to calculate the growth rates of the company together with the desired levels of financing, which can come from the company’s own liquidity, indebtedness, or of the issuance of new shares for subscription and payment. Compliance with the financing plan and the budget will contribute to keeping in balance the indebtedness of the acquiring company itself. Having delimited the above, once the companies identified as viable are analyzed and the results compared, it will be much easier to decide on the target company, this being, after all, the one that represents the greatest benefit.
