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M&A: There Is No Perfect Company to Buy

Buyers in M&A deals need to take care not to overdefine their acquisition targets. As Buyer, don’t match your search criteria to the absolute perfect company; you won’t find it. Focus is important, of course, but being too narrow in your search criteria limits your ability to find suitable targets.

Years ago, there was a company whose executives were quite proud of their very thoughtful and narrow search criteria. They were seeking companies with revenues between $10 million and $20 million, revenue growth of at least 10 percent per year, earnings before interest, taxes, depreciation, and amortization (EBITDA) of at least 15 percent, and no customer concentrations.

The targets’ industry also needed to be highly fragmented with the potential for further acquisitions. Plus, Seller needed to be highly motivated and willing to sell for a low price, accept an asset deal, and stay on board to continue to run the business.

The question for the company whose executives were seeking these criteria: Why would the owner of a perfect company be willing to accept a low price?

The odds of finding such a narrowly defined business are extremely low, so Buyers should temper their desire to narrow the search criteria with the reality that a search needs a large enough universe of targets to be successful.

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