For middle-market companies seeking to grow, diversify, or gain a competitive edge, the process of finding the right business for acquisition requires a clear strategy, beyond a simple market search. It demands discipline, a precise vision, and the kind of marketplace access Walden M&A provides.
Walden M&A Principals John Phillips and Samantha Jones share their insights on how to craft a successful acquisition strategy, from defining your ideal target to winning the trust of an unlisted seller.
Establishing a Clear Search Strategy
The most successful acquisition is never left to chance. It begins with the buyer taking a crucial first step: establishing a clear and highly specific search strategy. Broad criteria like “$10 to $20 million in manufacturing” are simply not enough to drive an effective search in a marketplace with millions of businesses.
“You need more than clarity of what you’re looking for. You need specificity,” says Jones. “You need to really understand the size of the company, the industry, its niche within the industry, and what you’re bringing to the table.”
A meticulous M&A firm must narrow down the universe of possibilities from thousands of potential companies to a manageable few hundred firms. This process starts with the client identifying their core goals. Are they acquiring to diversify revenue, secure skilled talent, or are they an investor seeking a specific return in a set time frame?
Phillips notes the goal helps guide a buyer back through all the necessary decisions to narrow the search. The narrower the criteria, the more effective the search and the better the results for the buy-side client.
“It really starts with the client having to identify their goals,” says Phillips. “And from that, we help guide them to work back through all those different decisions to narrow it down to where a search is just a few hundred firms, which is what we want to get to.”
This disciplined approach then extends into defining the value proposition. Beyond the niche and the target company’s elements, a buyer must understand the value proposition they bring to a seller, Jones added.
Finding the Hidden Opportunities Off-Market
There is a common misconception that the best acquisition targets are those publicly listed for sale. In the middle-market, this is rarely true. The most ideal acquisition targets are often found off-market, in confidential private conversations.
Walden M&A’s primary focus is to find these off-market companies. “In general, when you narrow down your search to that specific area you’re looking for, the chances of finding those specifications actually listed on the market at this current moment are unusual,” Phillips explained.
The systematic approach Walden M&A uses to identify and engage these hidden companies is rooted in both data and relationships.
- Proprietary Data and Outreach: While M&A firms certainly reach out to their network for targets, most buy-side transactions are found in the confidential off-market data. A vast majority of owners interested in selling have not yet publicly declared their interest, giving the buyer working with a capable M&A firm a significant head start.
- Relationships with Intermediaries: Walden M&A approaches intermediaries representing confidential sales. The firm leverages its track record and industry relationships—including accountants and lawyers—to gain referrals and insights into who might be a good fit.
- Neutral, Confidential Approach: Walden M&A acts as a neutral third party, approaching potential sellers in a confidential environment to gain their interest. This professional first contact allows both parties to determine the next steps, where they feel comfortable signing a Non-Disclosure Agreement (NDA) and proceeding to talks.
Mitigating Risk: Avoiding the “Perfect” Trap
The fear of “buying the wrong business” is a deeply felt internal pain point for any buyer. The biggest oversight Phillips has seen buyers make during the target identification phase is allowing themselves to envision an ideal, perfect company, which only exists in their minds.
“The reality is the ideal company probably does not exist,” Phillips said. “Companies are reflective of the people who run them, and people are all different. So every company, by fact, is run differently.”
An M&A advisor’s role is to serve as a counterweight, guiding the buyer toward a company closest to their ideal while grounding them in reality. Every business has strengths and challenges, but a strong M&A advisor can ensure those businesses represent a strong target for the buyer.
Jones emphasizes the process is about discerning which tradeoffs are worthwhile. “I think the best case is when you can see when a buyer and a seller connect culturally in a discussion,” Jones said. “Those are the most valuable because, as they say, ‘Culture eats strategy for breakfast.’ Culture is really the baseline for making a good acquisition.”
Non-Financial Deal Breakers: The Importance of Fit
Beyond the financials, the non-financial element of fit is often the most common deal-breaker. A lack of cultural fit, a weak management bench, or over-reliance on the owner can quickly derail a promising transaction.
Phillips notes one non-financial issue derailing deals is an owner who micromanages the business too much. This creates a problem for the buyer, who knows the target company’s owner is likely leaving and will need to find a new senior management team.
The non-financial factors creating value for a selling company, and leading to a more successful transition for a buyer include:
- Operational Independence: Owners who work on their business and not in their business, allowing the company to operate independently of the owner.
- Cash Flow and Revenue: A sustainable, growing source of recurring revenue.
- Management Strength: The bench strength of the management team allows managers to grow and improve the company after the current owner departs.
- Sustainable Processes and Systems: Processes and systems in place and sustainable after the transition of ownership.
Phillips summarized these key elements succinctly: “Independence of owners, cash flow, management strength, and processes tend to be the items making for a very successful transition.”
Walden M&A advises buyers to vet a company for these factors early by comparing the target business against their own core values to ensure cultural and ethical alignment.
The Competitive Advantage of an Advisor
Bringing in an experienced M&A advisor immediately gives a buyer a competitive advantage, especially when approaching a sought-after off-market business for the first time. The core advantage Walden M&A provides is a methodical, results-driven buy-side process.
“We have a methodical approach to finding acquisitions for a client,” says John Phillips, a principal at Walden M&A. “Buyers work with us when they are looking for a specific outcome in a specific time frame because we can evaluate the market and deliver on the promises we make through our process.”
This disciplined approach ensures the buyer is not just searching randomly; they are executing a defined strategy designed to secure a specific outcome. Walden M&A’s process is structured to handle the complexity of an acquisition from initial strategy to final close:
- Strategic Analysis: Defining the specific criteria, market niche, and acquisition goals.
- Target Identification: Systematically and confidentially identifying off-market candidates.
- Confidential Approach: Making the initial, neutral contact with unlisted sellers to open a dialogue.
- Due Diligence & Structuring: Vetting the company’s non-financial fit and structuring the offer for optimal value and terms.
This clear, step-by-step methodology replaces the uncertainty of a market search with the confidence of a proven system, significantly increasing the probability of a successful, on-target acquisition.
Earning the Seller’s Trust: The Buyer Proposition
When an unlisted, off-market business is approached confidentially, the seller is constantly being solicited to sell their business. To win a seller’s trust, the buyer’s initial pitch must focus on the buyer proposition.
“The buyer has to create a buyer proposition,” Phillips said. “Why should a potential seller sell to my company or what is the proposition making that seller become motivated to sell?”
The sellers want to know the buyer is serious and has a vision for the company’s future. The M&A advisor helps the buyer structure their approach to highlight how the acquisition is a mutually beneficial partnership. The buyers must essentially sell themselves to the potential seller by creating a value proposition, incentivizing the seller to choose them over a different suitor.
Choosing the right M&A partner is the first and most critical step in an acquisition journey. Walden M&A is prepared to guide you through the process, leveraging deep marketplace knowledge and a methodical approach to deliver the value and terms you should expect from your transaction.
Are you ready to explore your acquisition options? Contact Walden M&A to get started on your strategic buy-side search.