Criteria Modeling; Finding the Perfect Candidate Fit

Great Fish 1Many of us have been through the unsatisfying experience of a the management team determined to grow through acquisition without adequate definition. We travel, research, investigate, many opportunities without any return.

If something turns up that more or less fits, an offer is made (after all, this has been a major effort and we need to show results). With luck, a strong management team, and sound integration strategy, the deal will go together.

If the deal was not a fit, it becomes evident (but too late). Almost no amount of strong management and sound integration can successfully mesh a bad fit integration over an extended period (hence the negative statistics regarding acquisitions).

There are just too many new problems to solve.

This is the piece that gives us stories to tell about other peoples mistakes and catastrophes.

The failure of a completed transaction due to the poor choice in targeting candidates is very costly. Losses are considerable in money and human capital. People and business suffer.

Putting a robust criteria model at the center of the acquisition process takes risk out of the acquisition process at the beginning.

Searching with definition guarantees a specific (more measurable/qualified) target acquisition.

Share your experiences and ideas about this topic;

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5 thoughts on “Criteria Modeling; Finding the Perfect Candidate Fit

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  1. In my experience, at least 85% of the ‘fit’ comes from the management team because smart money always bets on jockeys, not race horses. This includes valuing the experience of failed entrepreneurs, either from their past deals, or the deal looking for a JV or acquisition. In evaluating management, and securing a deal that keeps them in place to integrate and scale the biz, the two alarm bells are arrogance and ignorance about the markets they are attempting to succeed in. And often there is a thin line between these two, with arrogance driving the entrepreneur to staying ignorant of what he or she is really trying to accomplish. Also, these two bad characteristics often slow the entrepreneurs from launching fast & cheap and turning on a dime to adapt to what the market is saying about the product or service.

  2. Leaving aside that contextual variations that occur with most acquisitions, there are a few logical and reasonably universal questions that need to be asked when searching for an acquisition.

    1. Will an acquisition (or JV) assist us in achieveing our corporate KPOs?
    2. What characteristics must the target display to best compliment our existing business and our strategy?
    3. Are there targets in the market which satisfy our “ideal acquisition profile”?
    4. What will it take to “buy” our ideal target? This includes: price, structure, impact on existing business (including culture, product/service mix, people, customers, suppliers, etc), impact on market, regulatory impact, impact on shareholders and stakeholders.
    5. Can we afford the price (financial and other)?
    6. How complex (painful) will swallowing the acquisition be and is it worth it?
    7. How do we structurally acquire (purchase, JV or merger, etc)?
    8. When do we acquire?

    Generally, if an organisation can get the answers to these questions aligned to their shareholders’ interests then the acquisition has a better chance of being successful.

  3. A key consideration is synergy. What I mean is the management philosophy of the 2 entities must be similar. I worked for a company once that was involved in a JV. Once we completed the transaction, it became evident that while we wanted to maintain the autonomy and entrepreneurial spirit our management team enjoyed, our JV partner wanted to exercise more control. This ultimately resulted in several senior managers (including me) leaving the company.

    Just my thoughts………

    Sreemukh Sanne

  4. Mike,

    Some pointers:
    1. Without creating a profile of the candidates you’ll struggle to find the right fit for you. A profile includes a financial profile and a strategic profile of what you see works best for you.
    2. Once you’ve created that profile you’ll be in a better position to identify and filter candidates to manage your time.

    Check out http://www.equitymetrics.com website. There is a lot of content to manage the financial impact pre and post-transaction with 100% accounting integrity. Subscribers to the system get to create scenarios to visualize the pre and post financial health of pretty much any kind of transaction between two parties.

    I hope this helps.

    Larry

  5. I should like to add to Larry’s comments – create your profile FIRST. Do not even consider looking at any potential acquisitions or joint ventures (or partners or ?) until you have detailed where you are today, what you want the other to have and what are your medium/long-term objectives.

    Expanding Larry’s comments, it is not simply financial & strategic profiles, but it may include customer base & markets served, geographical reach, staff skills & experience, product & service portfolio, etc.

    Good homework can lead to success (sorry no guarantees), but poor homework can guarantee failure!

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