Once the acquirer develops an acquisition strategy, and a clear understanding of business environment, then the acquirer must identify targets that are a good fit with acquirer’s portfolio and its business model. The acquirer must identify targets that are a good fit and would allow the acquirer achieve its synergy and growth expectations. The screening criteria for the acquisition may include the size of the acquisition based on revenues, industry position, market share, and cash flows. The acquirer must assess the target’s products, technologies, customers, channels of distribution and financials in addition to its cultural fit. The target’s products and services should help the acquirer achieve its desired ROI from the investment in the acquisition.
During target assessment, the acquirer must define which screening criteria are deal killers. Criteria that are “critical concerns” must be addressed through innovative solutions while recognizing that they will require additional costs and management time to remedy. Target selection must start with a set of specific, well-documented, and consistently understood criteria that guide the screening process and help with evaluating comparable targets.