Sourcing the Deals

Different companies will have various motives when deciding to pursue an acquisition, divestiture, joint venture, or strategic alliance plan. The decision is usually driven by key business fundamentals such as broader competitive product line, access to strong distribution channels or new markets, sharing of scarce talent, lower unit cost position via the elimination of common costs, economies of scale, better market positioning with a stronger brand recognition, and faster speed of entering a market versus doing a start-up. In the case of divestiture, the motivation to sell may be due to poor financial performance of the company or, if the business is a subsidiary or division, it no longer fits strategically with  the future direction  of the company.

Having decided that the company must participate in mergers, acquisitions, divestitures, joint ventures, or other strategic alliances to achieve short and long-term goals, it must then ensure that all transactions fit within the corporate strategic plan. Too often  in the past  companies who use business combinations to stray too far away from their “core business” strategy have a tendency to fail in their effort to execute on the promise of the deal. If the company has a clear sense of where it wants to go and the missing elements of its strategy that is needed to win, then finding companies who bring these missing strengths to bear on serving the market is an essential ingredient for success.

The strategic fit assessment is based on gaps that the company needs to close in its own strategy. The criteria for a good strategic fit should not be so tightly defined that very few candidates meet the requirements, nor so loosely that too many passes. Also, the criteria should be flexible and change over time as the business environment or priorities warrant.

There are four broad categories of companies which normally engages in the various forms of business combinations and other types of ventures:

* publicly traded companies
* private firms
* subsidiaries of public or private companies
* unincorporated company divisions

The decision of which type of company to combine with often depends on the maturity of the industry or the size of the target’s revenue.

The objective of the first face-to-face meeting is to have the right kind of people there.   Typically, these are people who know the business and the market in sufficient detail and can reach a decision on the potential value in combining assets. The participants must be comfortable operating at the executive level with excellent presentation and communication skills.   Each party must show genuine concern for the other party’s issues and look for “win-win” ways to address them.