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What to Consider When Acquiring a Company

Both private and public markets have experienced explosive growth in mergers and acquisitions activity over the past few years. Year-end numbers in 2021 put the value of M&A deals in the U.S. at $2.5 Trillion. From technology to healthcare, companies in all sectors are looking to acquisitions as a strategic growth initiative.

Acquiring companies has become a popular option for businesses looking to increase market share. However, there are some key factors that businesses must consider before acquiring a company, such as:

  • How to evaluate an acquisition and determine its long-term value
  • How to find companies for acquisition in a competitive market
  • The primary things to consider when acquiring a company
  • How to use private equity analytics software to inform acquisition decisions

Each of these factors will play a role in whether or not an acquisition is successful. By taking the time to consider each one carefully, businesses can put themselves in a position to make a sound investment that will help them grow and succeed.

Let’s discuss the factors to consider when acquiring a company and how you can leverage partnerships and private equity analytics to execute your growth strategy.

5 Factors to Consider When Acquiring A Company

Knowing what to look for when acquiring a company can help ensure you make a sound investment. In general, there are five main things to consider when acquiring a company:

  1. The Strategic Alignment
  2. The Investment
  3. The Regulations
  4. The Market Conditions
  5. The Vision

Let’s break down each of these factors in more detail.

The Strategic Alignment

It’s not just about how to find companies for acquisition; it’s about how to find the right ones. One of the first steps is determining how the acquisition aligns with your company’s strategic goals.

Is the target company a strategic fit as a complement, extension, or expansion of your existing organization? What are you looking to achieve by acquiring this company? How will this help you reach your long-term goals? Knowing the answers to these questions will help you determine whether or not an acquisition is the right move for your business.

One method of evaluating an acquisition’s strategic alignment is using a SWOT analysis. The exercise will help you identify the Strengths, Weaknesses, Opportunities, and Threats of the target company and determine whether it aligns with your criteria.

The Investment

Another vital factor to consider when acquiring a company is the investment required to complete the deal. Ensure you understand the total investment required before moving forward with an acquisition. 

You’ll also need to consider future projections and investments that may be required to support the acquired company. Some investments could include new product development or expanding the go-to-market or management team. By combining historical data and AI-driven projections, private equity analytics software can give a clear prediction of what to expect post-acquisition.

The Regulations

While acquisitions have become popular across many industries, there are still some regulatory hurdles that can’t be ignored. For example, in the healthcare industry, there are regulations in place that restrict how hospitals can merge or acquire other hospitals. These regulations exist to protect patients and ensure that they have access to quality care.

Antitrust laws are another example of regulations that can impact acquisitions. These laws exist to prevent monopolies and encourage competition. When pursuing an acquisition, carefully consider any regulations that could affect the deal.

The Market Conditions

The market plays a big part in determining whether an acquisition is a good strategy. Market value and sentiment also play a role in how to evaluate an acquisition, as well as what to look for when acquiring a company.

For example, let’s say you’re considering acquiring a company that provides cloud-based software solutions. As a technology company, current market conditions may dictate that valuations are high. Therefore, it’s important to understand how businesses are valued (EBITDA multiples, technology stack, ARR growth, etc.). Monitoring your industry’s market and acquisition metrics is crucial to maximizing your investment.

The Vision

Perhaps one of the most critical things to consider when acquiring a company is how this purchase fits your overall company vision.

Your vision guides your business decisions, so it’s essential to make your long-term goals part of what to consider when acquiring a company. Entering new markets, introducing new product lines, or adding more capabilities should all support the vision.

In addition, when considering an acquisition, make sure you have a plan for how the acquired company will be integrated into your business or portfolio. This process can be complex, so it’s essential to clearly define how the two companies will come together before moving forward with the deal.

The Benefits of Acquiring a Company

Acquiring a company can be complex, but this growth strategy has many potential benefits.

  • Increasing market share: When you acquire a company, you also acquire its customer base. Acquisitions are a great way to grow your business and gain a larger market share quickly.
  • Access to new technology: One of the key benefits of acquiring a company is gaining access to its technology stack. Expanded technology can save time and money on research and development costs or implementing new systems through trial and error.
  • Broadening core competencies:  Acquiring a new company can quickly expand the range of services or products you offer. This can be a great way to tap into new markets and grow your business.
  • Strengthening reputation in the industry: In some cases, an acquisition can help improve your reputation. If you acquire a well-established company with a strong culture and value proposition, those intangible assets can enhance your status in the marketplace.

Private Equity Analytics Software 

While the factors to consider when acquiring a company seem endless, making a strategic and well-thought-out plan for your capital is critical. The market conditions, the company’s vision, and the acquisition’s benefits and culture are all important considerations. By walking through each of these factors, you can ensure that you make the right decision for your business.

One of the best ways to gain a competitive edge in acquisitions is to leverage partnerships with PE firms that use private equity analytics software powered by AI. With udu, PE firms can enhance due diligence processes, identify the most promising companies for acquisition, and optimize deal terms.

However, udu’s innovative platform is far more than just private equity analytics software. It’s a powerful system designed to solve complex business challenges across various industries using AI-powered qualitative data harvesting. Ultimately, you can discover how to evaluate an acquisition using precise data across various industries.

And the best PE firms rely on strategic AI tools like udu to find more acquisition candidates faster. Schedule a demo today to learn how udu can improve your deal sourcing and acquisition initiatives!