How Many Companies to Include on Your M&A Target List
It takes only one. That’s the phrase of the day. It takes only one Buyer or Seller to close your M&A deal. That said, you need to consider the odds of successfully closing a deal when your target list amounts to a random sample of one. Those odds are poor.
Even if you do manage to develop a deal with that one suitor, the terms would likely be less than ideal, especially if you’re the Seller. After all, how can you talk to other Buyers about a better deal if you’re only talking to one prospective Buyer?
Because the odds of successfully closing a deal increase with a larger number of targets, you want a good-sized list. But how many make a good-sized target list?
Buyers: For Buyers, a target list of 75 to 100 Sellers is a good place to start. Depending on the particularities of the industry and general market conditions, a suitable list may be 50, but don’t go below that if you’re serious about closing a deal.
If you’re seeking to make multiple acquisitions over a period of time, you’re better off with a list of at least 100 targets. If this list doesn’t result in a successful transaction, review your assumptions and perhaps change your search criteria.
Sellers: For Sellers, a target list of at least 100 Buyers is a good place to start. A list of at least 100 qualified targets increases the likelihood of receiving multiple offers — the more targets you have the greater the odds you’ll receive offers.
In both cases, the target list should not be much higher than 125; the larger the list, the more difficult managing that list is.
Be aware, your target list may wind up with more than 125. As you make calls, you may discover a company on your list is actually a subsidiary of a parent, and you need to add the parent to the list. Or the parent is on your list but you end up dealing with someone at one of the subsidiaries, which you also have to add.