In part two of our series of three articles focusing on M&A we turn our attention to the value of embedded technology in prospective business acquisitions.
As the fallout from the pandemic continues, growth wholesale and distribution businesses are increasingly turning their attentions to opportunities to acquire competitors who may be looking to sell. Acquisitions present a compelling and well-trodden opportunity for businesses to make major strides in terms of size, market, geography, technology and profitability relatively quickly and typically less riskily than through long term organic internal investment. But once a business has determined that acquisition is the right approach to help deliver its business objectives, what do buyers look for in a potential target and why are the benefits of acquiring a business where technology is already strongly embedded across the organization so compelling?
The stand-out attributes buyers look for
Undertaking a successful acquisition is as much of an art as it is a science and different companies will of course adapt different strategies to identifying potential targets and assessing their suitability. That said, there are a typical number of attributes that buyers will look for in any potential target. When analyzing the key financial measures that make companies attractive acquisition prospects, researchers from London’s respected Cass Business School found that private companies are more likely to become acquisition targets if they are large, fast growing, and have high profitability, high leverage, and low liquidity.
What’s more, there are a number of further obvious measures that indicate a target merits strong consideration, such as being able to demonstrate a steady growth rate and history of profitability, having a strong, diversified product portfolio and a pedigree in innovation. Businesses with a strong management team also make eye-catching prospects as do those who serve niche or specialist markets and can robustly demonstrate market leadership in certain product or service offerings.
Ensuring acquistions are compatible
While some element of ‘gut feel’ will be inevitable within boardrooms when weighing different target businesses, particularly when assessing potential synergies between organizations, they will typically ask themselves a number of key questions to arrive at a slimmed down list of potential buys. Firstly, buyers must consider how effectively and deeply the target will contribute to the company’s overall business strategy and what its genuine prospects are for long term growth. Naturally, a buyer will always also want to know that the target has the right technology, products and services to complement their own existing offerings. The company will also need to be the right size and in the right geographic location/s to be easily assimilated into the acquiring business and its culture. Importantly, with so much at stake, acquirers also need to be sure that the timing is right to pursue the business in question
Technology and data talks
Given the march of technology within distribution businesses over recent years, most notably during the Covid crisis, which has seen tech uptake significantly increase as businesses have sought to mitigate the worst effects of the pandemic, more than ever buyers are also on the lookout for robustly data-enabled targets that can demonstrate they know their customers inside out – and have the metrics to prove it. With good reason. There can be myriad benefits for buyers when bringing on board an acquisition where sales enablement software is embedded.
Fundamentally, having access to a business’ key customer metrics can help busy execs understand untapped revenue potential when considering a new customer base and help them accelerate payback on their overall investment. In any acquisition there is usually a pressing need for the buying company to quickly get up to speed with new accounts and customer relationships and where this detail is immediately accessible via a platform like sales-i, it can make this process so much easier, particularly if the acquisition entails sales territories being merged or sales professionals taking on new accounts. What’s more, deploying sales enablement tech during the due diligence process can quickly and easily help buyers understand what the potential revenue uplift might arise through bringing on board a potential target.
Looking more broadly, the acquisition process can also present a compelling opportunity for buyers to re-evaluate, adapt and re-invest in their overall sales strategies, especially when it comes to investigating the benefits of standardizing the sales tools in use across the organization with a simplified front end solution like sales-i. Getting employees fully on board with any new acquisition is always a considerable challenge so pushing ahead with investment in new technology to smooth the process can be great for team morale.
Ultimately, buyers look for many attributes in potential acquisition targets with different weightings and importance applied to different operational capabilities, depending on the size of the organizations involved, which market sector they serve and where they’re located. In the acquisition hungry distribution sector right now we’re seeing more and more deals get over the line involving businesses where technology solutions and robust data management are built-in to their day-to-day operations, bringing significant benefits for buyers and sellers alike.
Preparing to selI?
In the final instalment of our series on M&A opportunities in the wholesale distribution market, we look at the perspective of seller businesses and what they can do to maximise both their attractiveness to potential suitors and the overall value of their companies.
Not read part one in our mergers an acquisition article series?
Catch up now:
Part one - Distributors, is your sales data deal-ready for the coming M&A wave?