Searching to find the right types of companies that may be bought out? In times of economic uncertainty, properly sourcing and evaluating a company for acquisition is even more critical.
Although 2022 data shows a slowing of merger and acquisition activity over 2021, deal volume remains strong, even with market volatility. In this environment, private equity firms must remain nimble and sharp in their quest to uncover attractive acquisition targets with clear strategies around:
- Where to find a business to buy
- How to find acquisition targets
- Identifying companies that may be bought out
- Evaluating a company for acquisition
Let’s take a closer look at how to find acquisition targets, including the most effective approach to private equity deal sourcing that will help your firm reach its goals.
Factors to Consider When Looking for Companies That May Be Bought Out
When considering how to find companies to acquire, you must be strategic in your methodology. Here are a few key factors to keep in mind:
A Strong Management Team and Operational Discipline
Is your firm ready to buy a business? One of the most important factors to consider in how to find company acquisitions is the existing management team.
Does the company have a history of making sound decisions and executing them effectively? Are they able to weather difficult times and maintain profitability?
In addition, you’ll want to assess whether the company has operational discipline in place. Evaluate whether effective financial controls, a streamlined organizational structure, and well-defined processes and procedures are already present.
A Company That Is Growing or Has Potential for Growth
Take a close look at the business plan and growth drivers before making an offer to buy a business. Does the company have a clear strategy for how they plan to grow? Are there unmet needs in their current markets that they can maximize?
If the company operates within an industry that is non-cyclical (e.g., healthcare, education), this will provide some stability and predictability even during economic downturns.
Ensuring that the business has reliable cash flow and potential for growth will help reduce the risk involved in an acquisition.
Attractive Business Model
When it comes to honing in on how to find acquisition targets, it’s also important to take a close look at the business models. Is it something that can be replicated? Is it scalable? Does it generate high margins? Are there any potential barriers to entry that could protect the business from competitors?
While capital expenditures and other one-time costs can put a dent in profitability in the short term, a company with a strong business model will be able to weather the trying times and succeed.
Robust Financial Health
Of course, you’ll also want to look closely at the company’s financial health before spending time and resources developing a term sheet. This includes reviewing the target’s financial statements, assessing the strength of their balance sheet, and looking at other key indicators like cash flow and working capital or capital expenditure needs.
How to Find a Small Business to Buy
However, step one is to uncover the best place to find a business for sale. Here are some of the top strategies for how to find companies to acquire:
One of the simplest deal sourcing methods is manually researching businesses in your target industry or geographic area of interest to create a list of potential companies that may be bought out.
Manual research can involve anything from reading trade publications and conducting online searches to attending industry events and networking with potential sellers. Once you’ve compiled a list of potential targets, you can contact them directly to inquire about their interest in selling.
Partner With Business Brokers
Brokers can be a great resource when looking to buy a business. They typically have an extensive database of organizational connections and can often bring you leads that you otherwise wouldn’t have access to.
Work Through M&A Intermediaries
If you’re wondering how to find a small business to buy, M&A advisors can also be a great source of leads. These professionals typically have their finger on the pulse of what’s happening in the industry, and they may be able to connect you with businesses that are for sale.
Use a Deal Sourcing Tool
Struggling with how to find company acquisitions faster? A newer, more efficient way to find acquisition targets that match your specific criteria is through private equity deal sourcing tools. AI-powered private equity deal sourcing platforms use artificial intelligence to research and identify potential leads around the clock, saving time and improving the quality and quantity of results.
As you can see, there’s no one-size-fits-all solution for how to find acquisition targets. However, employing the latest AI-driven deal sourcing technology can help you achieve your acquisition goals faster.
Implement More Effective Private Equity Deal Sourcing With udu
When looking for companies that may be bought out, knowing the key factors to consider and the best place to find a business for sale are only part of the equation.
The other piece of the puzzle is having a way to quickly and efficiently source, screen, evaluate, and track potential leads—udu’s powerful deal sourcing tool can help you do just that.
udu helps private equity and portfolio companies acquire targets faster by capitalizing on the power of AI, data harvesting, natural language processing, and machine learning. By systematically scanning web-connected data sources 24/7, udu creates a proprietary deal flow that uncovers the best companies that may be bought out virtually on-demand.
Schedule a demo today to learn more about how our AI-powered platform, udu, can help you source and close more deals.