Navigating the Market: Effective Techniques for Finding Acquisition Targets

Once you have a good idea of the type of business you’re looking for, you’re good to go, right?

Not quite. You can’t “manifest” your ideal target company. You have to search for it.

So, where do we start searching?

This stage of the acquisition process can be slightly frustrating because although it’s not the most technical part of the process, it requires patience.

Not many things bug me as much as knowing that I’m equipped to solve a problem but that I don’t have a seat at the table.

The good news is that there are numerous techniques to improve your chances of finding a viable acquisition target, cut down your wait time, and get back to the real work of investigating and acquiring an attractive target company.

Let’s switch up to the fast lane.

The Best Methods for Finding Acquisition Targets

The most useful resources for acquisitions tend to be specialized. They may focus on certain industries or markets. They may only cover target businesses of a certain size.

Choosing resources that fit your needs is common sense in the same way that skilled employees search on industry-specific job boards and join communities rather than trawl through generalist sites.

So let’s define your parameters.

  • Business size (e.g. $500,000-$1m; $3m-$5m)
  • Industry (e.g. HVAC; SaaS; FinTech)
  • Market size & scope (e.g. regional; national; international)
  • Is the business for sale?

This last one is important – while online searches will typically only bring up companies that are already looking for a buyer, these aren’t always the companies you’re looking for. Methods like networking have the advantage of making you aware of businesses that aren’t openly looking for a buyer but may be more attractive.

Of course, you’ll later refine your search by considering features like the business’s multiples, assets, cash flow, etc., and many search platforms allow you to filter by these features. However, these are common to deals of all sizes and types, so we won’t focus on them here.

With a good idea of the type of company we’re looking for, it’s time to consider the merits of each search technique.

Business Brokers

Whether they’re your first port of call or not, you’ll likely end up working with business brokers at some point. The PATHS framework devotes significant time to the role of the business broker for this reason.

However, especially if you’re inexperienced, I’d say brokers shouldn’t be the first resource you go to when you’re looking for acquisition targets.

Here’s why.

Brokers are tasked with helping the seller find a worthy buyer for their company. For this reason, you’ll need to be prepared for immediate scrutiny when you approach a business broker. You can immediately invalidate your chance of pursuing a successful acquisition if your proposition seems vague or unrealistic.

They also represent a large number of clients. Let’s say you make a poor impression the first time you speak to a seasoned broker. While “blacklisted” is perhaps too strong a term, you certainly won’t be given preferential treatment the next time you approach them.

So why are business brokers top of this list?

It’s because once you’re ready to present a solid case for yourself as a buyer, they’re the most reliable and effective means of finding good targets. Yes, you’ll need to be prepared for all the usual upselling, but good-quality brokers are realistic and know it’s in their best interests to put together deals that satisfy both clients.

Their reputation amongst both buyers and sellers depends on it.

You’ll have access to an expert opinion when you’re matching your needs and goals to the seller’s. Subject to confidentiality agreements, you’ll also have access to accurate data about the seller’s business, as a reputable broker will have performed their own checks in this area.

“Reputable” is the key term here. It’s not difficult to find horror stories of budding entrepreneurs who have been taken for a ride by brokers who charge high fees for subpar acquisition prospects.

Brokers vet buyers and sellers. So who vets the brokers? Let’s move on to a top priority when searching for acquisition targets – building a network.

Professional Networks

Very, very few entrepreneurs do their best work in complete isolation.

Anyone who has built or managed a company understands the importance of surrounding yourself with people who aren’t afraid to tell you the hard truths.

In the same way, I live to come up with ideas. And I find I’m much, much better at coming up with ideas when I’m around like-minded people.

Isolating yourself in your search for acquisition targets – and understanding which targets might be best suited for you – is just a bad idea. You’ll be a starving shark in countless miles of open ocean. All the good action is around the reefs.

I can’t stress the importance of consistently building your professional network when you’re searching for acquisition targets. You’ll get referrals for companies you never would’ve heard of otherwise. You’ll get recommendations for brokers from people who have past experience. These referrals save you so much time.

Friends and professional associates are a free source of information. Is it trustworthy? Perhaps. No information is trustworthy until you’ve done your own research.

You’ll always be the judge, but you’re best advised to listen to a jury of your peers. The more peers, the better.

Online Classified Ads

There are a few great sites providing classified ads for companies looking for sellers. Many of these are attached to a brokerage, but they’re a great place to look over a wide variety of businesses and get a more realistic picture of your acquisition opportunities.

The drawback of classifieds is that there’s often limited information available until you make an approach. This makes it difficult to compare targets side-by-side, especially if they’ve been listed on different platforms with distinct listing criteria.

In some cases, companies looking to sell may not want to make certain information public. In others, they’ve just… not done a very good job with the listing. It’s frustrating, but searching the classifieds is still a good way to get a general picture of the market.

Socials

There are numerous industry groups and follow-lists on sites like X (formerly known as Twitter) that can provide excellent insights to complement your professional network.

Even better – these lists offer an opportunity to expand your network and your knowledge base. If you’re less experienced, it can actually pay to be openly naive on X and ask questions that reveal you don’t know literally everything about everything.

Why? Because people love to answer questions on X that they’re confident they know the answer to. Sure, you’ll need to take the answers with a pinch of salt. But among the twittering, you’ll find genuinely useful information and some great recommendations for target businesses that fit your needs.

As we know, everyone’s an expert when they’re on X. But some experts do actually use X. These are the people you want to stay in contact with. They’re valuable additions to your network and can provide excellent leads.

Industry Events

Attending industry events is another chance to build your network. A downside is that these can be pretty expensive, with even virtual events frequently costing thousands of dollars to attend.

That doesn’t mean you should write events and trade shows off, especially if they’re in person. Check out local events rather than going straight for the biggest conventions – they’ll typically command a lower price tag and may be more relevant to your needs.

Insider Communities

Knowledgeable insider communities are the perfect overlap in the Ven diagram of industry networking events and social networking. The price for admission is substantially lower than big events, and the information is easier to verify than advice on social media.

A great insider community will give you access to insights and acquisition opportunities via newsletters, interviews, and opportunities to speak directly with a community of like-minded individuals. It’s the perfect place to ask the important questions about finding & working with brokers, whether you should approach a target company, and so much more.

Building an Information Network

Every resource listed above forms part of a wider information network. Every acquisition entrepreneur needs to constantly build and maintain this type of network – opportunities move along quickly in this industry.

The more prospects you have the chance to review, the greater your chances of finding the ideal acquisition target.

These are the 3 questions I ask myself when I’m considering whether a resource contributes to my information network.

1. How Much Do I Trust It?

Information sources are ranked by trust. This doesn’t mean that low-trust sources (e.g. hearsay on X) aren’t worth keeping around.

It just means that every time I hear something interesting from a low-trust source, I have to follow it through with higher-trust sources until we get to a place where I’m confident in making a decision.

This can be time-consuming, but if you’re not willing to put time into investigating whether information is trustworthy, you’re going to hate due diligence. I love these little investigations – they can be incredibly rewarding.

2. What Will It Cost Me?

Every opportunity to find a new acquisition target comes at a price:

  • At a trade show, this price is hundreds or even thousands of dollars
  • When browsing classified ads, it’s the frustration of incomplete or unverified information
  • With a broker, it’s their fees and commission
  • On social media, it’s part of my sanity

Really, a simple cost/benefit analysis is the best way to decide whether an information source is worth its price for helping you find acquisition targets. The difference in profitability between a target that is a 9/10 fit vs. a 6/10 fit outweighs almost most costs you’ll incur by paying for access to the best opportunities.

3. Is It Relevant to Me?

Look, I love hearing about the multi-billion dollar mergers between multinational giants as much as the next person.

But those deals are already making the news, and there’s no opportunity for me there. What I want to know about is realistic opportunities for acquisition entrepreneurs with my means, my objectives, and my priorities.

As I said earlier – generalist information sources are the enemy. I want highly-targeted specifics. From my follow lists to my subscriptions to the brokers I know have what I want, everything is optimized for relevance.

The More You Know

An effective knowledge network gives you the best opportunity to find an acquisition target with potential. Over time, you’ll build your network to include trusted brokers, professional associates, and experts whose tips you’ve learned to trust.

Joining an industry community is the best way to get started. Your work is already half-done.

You’ll have access to highly specific, relevant tips and opportunities. You’ll get regular insights from experienced M&A professionals. And you may just find your ideal acquisition target.

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