Acquisition pipeline refers to a series of companies that a potential acquirer has identified as potential targets for acquisition. It usually begins with deal sourcing, where the acquirer identifies potential targets and evaluates them based on criteria such as financial performance, market size, and competitive environment.
The acquirer then proceeds with due diligence to investigate and analyze the target company and negotiate the terms of the acquisition. Once the acquisition is completed, the acquirer is then responsible for integrating the target company into its own operations. According to the most recent McKinsey research, businesses that routinely and methodically pursue moderate-sized M&A produce higher shareholder returns than those that don’t.
According to the 26th Annual Survey on global CEOs, it can be said that While 73% of corporate leaders are gloomy about the global economy’s growth, 60% of them are not planning to postpone acquisitions in 2023 to reduce anticipated economic issues and volatility. It can be said that CEOs continue to look at startup acquisition as a tool to speed up the digital and environmental, social, and governance (ESG) transformation of their companies in addition to the need to expand. Here, we have discussed challenges in building a qualified acquisition pipeline.
1. Lack of merger and acquisition pipeline
Lack of merger and acquisition pipeline typically refers to a shortage of potential companies available for acquisition or merger. This can result in reduced opportunities for companies seeking to grow through M&A, potentially leading to slower growth or increased competition for limited targets.
2. Limited bandwidth to continuous source deals
Limited bandwidth to continuously source deals can have a significant impact on the M&A process. Without sufficient resources to identify and evaluate potential targets, acquirers may miss out on opportunities to expand their businesses through M&A. This can result in a reduced pipeline of potential deals, which can limit growth opportunities and potentially lead to increased competition for a limited pool of targets. In addition, limited bandwidth can also slow down the M&A process and increase the time it takes to close a deal, which can impact deal valuations and increase the risk of deals falling through. To maintain a healthy M&A pipeline, it’s important to have sufficient resources and capabilities to continuously identify and evaluate potential targets.
3. Absence of intelligence and data on companies
The absence of intelligence and data on companies can have a significant impact on the merger and acquisition pipeline. Without adequate information on potential targets, while acquiring startups, acquirers may struggle to identify suitable companies to merge with or acquire. This can result in a reduced pool of candidates, longer lead times for deal execution, and potentially increased risk for acquirers. In addition, insufficient data can also make it difficult to assess the value and potential risks of target companies, which can further complicate the M&A process. As a result, having access to accurate and comprehensive information on potential targets is critical to maintaining a healthy M&A pipeline.
4. Slow pace in closing and sourcing deals
A slow pace in closing and sourcing deals can have a significant impact on the M&A process. It can lead to a reduced pipeline of potential deals, which can limit growth opportunities and potentially increase competition for a limited pool of targets. Slow deal sourcing can also mean that companies may miss out on opportunities to expand their businesses through M&A. Additionally, slow deal closing can impact deal valuations and increase the risk of deals falling through, which can have a negative impact on the company’s financial performance.
To maintain a healthy M&A pipeline, it’s important to have a streamlined and efficient process for identifying, evaluating, and closing deals. This requires having the right resources and capabilities, including a strong M&A team, effective due diligence processes, and the ability to move quickly and decisively when opportunities arise.
5. Assessing the financial and legal implications of M&A
Another challenge is assessing the financial and legal implications of the merger or acquisition. This involves understanding the tax implications, the potential liabilities, and the overall financial impact of the transaction. Additionally, contracts must be carefully reviewed and negotiated to ensure that the terms are fair and equitable for both parties.
Finally, the process of integrating the two entities can be a challenge. This involves ensuring that the right processes and systems are in place to ensure a smooth transition. Additionally, cultural and organizational changes must be managed in order to ensure that the combined entity is able to move forward as a unified team.
The solutions for overcoming the challenges
● Instead of only actively scouting for opportunities, passively look for ones that can benefit the organization.
● Build a strong pipeline of quality leads and a startup database that meets the acquisition strategy’s requirements.
● Clarify your business objectives and your investment needs, then choose the best opportunities to invest in.
● Conduct thorough research to confirm all relevant details regarding agreements, funds, personnel, and clients.
● Integration of Systems and Processes: The integration of systems and processes can be challenging because of the differences in IT systems, procedures, and policies. To address this challenge, companies should identify and prioritize the key systems and processes that need to be integrated and create a detailed integration plan. It is also important to appoint a dedicated team to oversee the integration and ensure effective communication between the two companies.
Takeaways
Hence, it can be summarized that in building a qualified acquisition pipeline, some common challenges are lack of merger and acquisition pipeline and limited bandwidth to continuous source deals. Other challenges include the absence of intelligence and data on companies and the slow pace of closing and sourcing deals. To overcome these challenges, building quality leads and clarification of business objectives is essential. It is necessary to conduct in-depth research for detailed confirmation.
Making the best programmatic M&A choices and integrating your company with changing market dynamics are essential if you want to maximize potential and promote growth. In this context of startup acquisition, GrowthPal can be your reliable partner to build a Programmatic M&A Pipeline. To get this assistance, contact us today.
