Understanding What Acquirers Look for When Buying a Company: Insights from Experienced Investment Bankers

In the complex and often opaque world of mergers and acquisitions (M&A), knowledge is power. Business owners, entrepreneurs, founders, and CEOs are frequently left pondering the critical elements that will help their companies secure an optimal valuation in an acquisition. My recent virtual lunch with early and growth stage founders and investors shed light on this very subject.

Drawing on my background as an investor, a multi-exited founder, and a corporate executive, coupled with insights from other corporate development teams and investment banking professionals, it's clear that there are distinctive drivers that buyers seek. At Nfluence Partners , we strategize with founders as they prepare and  position their companies for sale. Below we outline what acquirers typically prioritize when they are evaluating acquisitions.

Strategic Fit:

Not surprisingly, acquirers seek targets that seamlessly weave into their long-term strategy, potentially complementing their existing products or services, or plugging a gap in their portfolio. An investment banker with over two decades of experience, Gary Moon advises, "The ability to articulate how your company fits into a potential acquirer's future can be the difference between a passing glance and a compelling proposition."

Financial Performance:

A robust financial trajectory is invariably at the heart of any acquisition consideration. Potential acquirers meticulously pore over financial statements, assessing revenue growth, margins, profitability and cash flow. Ensuring transparency and demonstrating a track record of sustainable growth can significantly elevate a company's appeal as an acquisition target and ultimate offer. 

Market Opportunity:

Prospective acquirers rigorously evaluate the market potential of their targets—a booming market with a defensible market share is particularly enticing. Entrepreneurs who underscore their scalable growth strategy can find themselves at an advantage. In recent years, M&A activities have concentrated on sectors with rapid growth and transformation potential, highlighting market opportunity as a prime factor. For example, not surprisingly,  AI that creates impactful cost savings and top-line growth is an area of interest for many acquirers. 

Customer Base and Relationships:

A diverse and strong, loyal customer base can sway acquirers. Companies are inclined towards targets that showcase solid market repute, customer retention, and growth strategies, especially if there is little overlap between the acquirer’s customer base, leading to cross-sell and up-sell opportunities. 

Technology and Intellectual Property (IP):

A company's tech and IP assets are scrutinized for their potential to give an acquirer a leading edge. Founders should emphasize their R&D efforts and any patents or proprietary systems that would bolster the acquirer's technological fortitude.  However, it is important to note that technology without customer and revenue proof points will not attract most acquirers.  

Talent and Team:

A company’s team’s expertise and leadership qualities are highly prized during acquisition evaluations. A company with a vibrant culture and an innovative leadership team can hold a high position on the acquirer’s checklist. "Teams with unique competencies are always on the radar of companies eyeing acquisition," says Gary Moon.

Operational Efficiency:

Potential acquirers esteem operational efficiency and the promise of seamless integration. By demonstrating scalable processes and infrastructure, founders can pitch their companies as entities that will contribute to cost savings and operational synergies.

Regulatory and Compliance:

In today's highly regulated markets, compliance and risk management are of paramount importance. Founders should ensure that their regulatory and governance structures are robust and could withstand the due diligence scrutiny.

These consolidated points offer a road map for business leaders aiming to align their enterprises with the trajectories of potential acquirers, ultimately amplifying their value and positioning in the vast M&A seascape.

M&A activities are often likened to an iceberg—what lies beneath the surface upon closer diligence truly shapes the encounter. Founders, by paying heed to these pivotal aspects and preparing their companies accordingly, can gain leverage in negotiations and pave the way for successful acquisitions. Gary Moon summarizes, "Understanding what companies look for is about aligning visions, demonstrating value, and navigating the subtler nuances of business synergies."

Navigating the M&A process requires a deep understanding of these factors and more importantly, the acknowledgement that every acquisition is a unique interplay of various forces. In fortifying their position, business owners must look internally and externally, ensuring readiness at levels that extend beyond the financial statements, resonating with the more nuanced aspects of what an acquisition truly entails.  "It’s about the match, not just the numbers," concludes Gary.

Remember, while data offers insights, it is the stories weaved within your company's fabric that will paint a compelling narrative for a potential suitor. Stay acute in recognizing your firm's strengths, transparent in its operations, and strategic in its positioning, and the M&A landscape can unfold favorably.This wisdom from the trenches of investment banking serves as a guiding star as you steer your company towards such significant tides.

If you’d like to learn more or explore your options, schedule a call with me here.