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In a recent post, we discussed the significant difference between the financial acquisition value and the strategic acquisition value of a privately held company. Obviously, before you can convert your company into an attractive strategic acquisition candidate, you have to learn just what that means in your industry. But, how can you do that? You certainly can’t just walk up to a key acquisition executive and ask, can you?
Actually, with a few important modifications, that’s precisely what you can, and should, do! Well, not you personally, because it will be important to keep your company unidentified. Just have a trusted advisor conduct these interviews on your behalf.
Once you and your team have developed a list of likely buyers, design a questionnaire that will take no more than 15 minutes to complete on the telephone. The questions you ask will largely depend on your industry and the data you want to gather on where these executives think the industry is headed. However, two questions will be common to all questionnaires, irrespective of the size of your company or its industry.
- If you were to acquire a company in this industry today, which strategic assets would be most valuable to you?
- How are these preferences like to change over the next few years?
If your interviewer talks to enough acquisition executives (15-25 should do it) and compiles the responses, s/he will have put together the profile of the attractive strategic acquisition candidate from the perspective of the marketplace. Next, conduct a “gap analysis” that compares this profile with the strategic profile of your company. In other words, how does your company stack up on each strategic asset regarded by a number of interviewees as important? In most cases, your individual strategic asset ratings will fall roughly into three categories.
- We are in very good shape, and need only fine tuning.
- We have made significant strides, but we have a long way to go.
- We are pretty close to the starting blocks.
Once you have made these judgments, you can decide which strategic assets to acquire and/or enhance in order to move your company’s strategic profile closer to what the marketplace has specified. Consider these possible scenarios.
- Many interviewees indicate that they would be very interested in acquiring a leading regional company in your industry, but not a local one. This would suggest that acquiring one or more companies in your industry or, perhaps, merging with a larger competitor elsewhere in your region, would make the equity in your company much more valuable.
- A number of executives indicate that some important product development opportunities are stalled because the components currently available in the market are technically inadequate. One or more of these components is within your company’s technical expertise. This information could affect your strategic product development effort in a very positive and targeted way.
- You have been planning to expand into a new market niche, and have narrowed the choices to three that appear to be roughly equally promising. The interviews yield the information that one of these three would be considered very valuable to many prospective buyers. Case closed.
Once you have made these decisions, you need only incorporate them into an effective strategic plan, complete with areas of individual responsibility, deadlines and standards of performance. Good luck!
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This article has been contributed by Steven D. Popell. Steve has been a general management consultant since 1970. Steve is a Certified Management Consultant, business valuation expert, and inventor of ExiTrak®– a process designed to assist the privately-held company owner/manager to build an attractive strategic acquisition candidate