Case Study: M&A Target Pipeline Development

CNP was engaged by a European-HQ-d testing, inspection, and certification business to help identify and pursue U.S. acquisition targets. The client’s key objectives were to:

Increase the volume of targets in its ‘pipeline’ of acquisition opportunities.
Build an efficient and effective tool to track and manage acquisition targets.

We approached this project in four phases:

Phase 1: Scope

Our initial priority was identifying objectives for the target search and then set a timeline and budget for CNP’s work. As part of this, we reviewed with the client past target searches’ success (and failure) to glean lessons learned.

Crucially, we took the time to review with the client how an acquisition in the U.S. would support its overall corporate strategy for growth. We think that it is critical that there is a straight line between a buyer’s strategy and the ‘why’ for identifying and pursuing acquisition targets. This discussion helped us develop a set of ~12 criteria for identifying and evaluating potential targets and defining keywords for the CNP’s searches.

Phase 2: Plan

Where to Find Potential Acquisition Targets?

Our next step was to define the process (i.e., the different stages) that a potential target would pass through from initially being identified to being acquired. This governance process would shape the review and evaluation process that CNP and the client would follow together.

We then presented to the client various options for tracking & managing the targets identified by the CNP team. The options ranged from a basic Excel file through to an M&A-specific software-based pipeline management tool. The client, rightly we think, settled for a dedicated iteration of HubSpot’s deal pipeline tool that we customized to the client’s governance process and to meet the needs of any M&A search. The key benefits of using the HubSpot pipeline tool were: (1) with email and LinkedIn integration enabled, target outreach could be done from within the tool, and (2) it provided a clear, up-to-the-minute picture of the status of the pipeline.

Lastly, we identified the key sources of potential targets: web-based sales platforms, desktop searches (in this case Sales Navigator-focused) and professional industry listings.

Phase 3: Outreach

We commenced our outreach and started to populate the pipeline tool with targets identified by CNP. Those targets were triaged by the client and then, if approved for pursuit, we reached out to target management in line an engagement strategy developed with the client.

As targets responded they were progressed along the pipeline. Those that responded ‘that you but no’ were moved out. For others, NDAs were signed, initial requests of information made, etc.

We had agreed a biweekly reporting cycle with the client to ensure focus and discipline to the search efforts. The overall status of the pipeline was summarized in a bespoke status dashboard that CNP kept up-to-date.

Phase 4: Iterate

M&A is often like shopping in a Soviet-era supermarket: often what you want to buy is not for sale. If it is, it is in a different size or variety from the ideal and/or it is a price that does not fit your budget. That was the case with some aspect of this search – some of the search criteria were hard to meet and, based on client feedback, we evolved the search criteria as we went to ensure that there was a significantly large enough pool to targets to fill the pipeline. Volume is important as, on an unsolicited outreach, only between 1-3% of potential targets that are approached are likely to result in an successful deal.

Our approach allowed us to funnel over two hundred potential acquisition targets into the client’s M&A funnel. Those included a number that were at (or about to be) actively marketed for sale.

Success Factors

Volume is Critical to Success

Because of the low ‘hit rate’ in M&A pursuits and because the gestation period between identifying a target and closing the deal is measured in months and sometimes years, buyers will need patience and perseverance. With that in mind, CNP is often asked if we can help boost deal flow.

The key elements to increasing deal flow are:

Increasing the volume of potential targets that are identified and fed into the start of the buyer’s M&A pipeline. A broad range of sources will help with this as will applying resource to gather and review those targets.
Creating an efficient and well-resourced process that will push potential targets through the pipeline until they reach the deal phase (or drop out). The buyer’s team needs to move with urgency and must define stages in its pipeline process that include review/approval.
Employing a pipeline tool that can be used to track the progress of individual pursuits and give management an overall picture of M&A activity. The most effective pipeline tools (which are basically a CRM for M&A) can even automate some of the processes.

Target sourcing and pursuit have many similarities to a business’s sales process
Chris Perfect

We see the following as key factors to the success of an M&A target identification project like this one:

Define clear search and evaluation criteria for potential targets. The buyer’s team should be aligned on these criteria, and they should support its corporate strategy
Volume matters. If the search criteria yield too many potential targets the pipeline will quickly become unmanageable. Too few and the chances of closing any acquisitions quickly diminish
Pick the right tool. While an Excel-based target track may do the job for a small and straightforward search project, a web-based tool will make almost all other project more effective and more efficient
Even the help of an M&A advisor and an efficient pipeline tool, the search progress will be slowed if the buyer’s team do not have the bandwidth to devote to reviewing/approve targets. It is vital at the outset of the pursuit for the buyer’s team to recognize this time commitment and to devote time to M&A

Need help identifying acquisition targets?

Reach out today to discuss how we can help. Contact: Chris Perfect