Acquisition Marketplace Review - The Journal of Applied M & A Theory
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Whether you use Deal Reviewer or a system of your own devising, understanding strategic motivations and defining financial criteria is a “best practice” that can be utilized to improve the overall effectiveness of a corporate M&A program, regardless of company size. The list below offers 9 reasons to undertake the process of establishing deal criteria.

  1. The process of defining strategic motivations and financial criteria facilitates strategic thinking and the development of fresh insights into the business and its future course.
  2. Decision-making is a process of “values clarification.” To the extent that a company’s values are better clarified, its decision making process is improved.
  3. Values (strategic motivations and criteria) are fundamental to rational decision-making. Without clearly defined values, decisions are made based upon available alternatives. Defining values empowers you to choose whether any alternative is appropriate.
  4. In addition to facilitating strategic thinking, formal deal criteria helps to get key personnel on the same sheet of music.
  5. Deal criteria can be used as a rejection device for situations that are a poor fit. Being able to quickly separate the winners from the losers saves both time and money.
  6. Formal deal criteria, by definition, creates a profile of the type of company that is most desirable and makes it easier to target and find situations that fit and offer the desired values. Knowing what you want makes it much easier to find it.
  7. It’s a costly mistake to allow your desire for a company to define your strategy—it should be your strategy that defines your desire for a target. It has been noted that the theory determines the observation. Successful deals have a compelling strategic rationale, but they are not “rationalized.”
  8. The forward-thinking necessary to clarify values and establish criteria can facilitate post acquisition integration by placing emphasis on “life after the acquisition,” rather than the complexities of closing the deal. It’s easier to look beyond the deal when the deal is a means and not an end in itself.
  9. Being able to act fast is important. Knowing what you want allows you to quickly recognize and respond to it when you find it. In a hot M&A market, if you take too long to decide whether to seriously pursue a deal, it might be acquired by a competitor or another buyer.

Not all strategic motivators are equal. Some are more important that others. When evaluating acquisition candidates, each motivator should be evaluated and compared according to its relative importance. The system used in Lightning Deal Reviewer allows a weight to be assigned to each motivator. The target’s perceived capacity to meet the motivation is then rated so that a weighted rating for each motivator can be obtained along with an aggregate weighting for all strategic motivators. Back to Main


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