5 Step Guide to Making Smart Strategic Acquisitions

For established businesses, acquiring another company can provide a great way to reach new geographical markets, drive growth, provide supply chain security or to gain access to superior technology and ideas. Acquisitions are also filled with risks, and can prove costly if they are not planned and executed with great care.

At Groves & Partners we have significant experience in ensuring acquisitions are completed in a measured and considered fashion in order to secure and maximise their long-term benefit. Based on this, we have developed this guide to making smart strategic acquisitions.

Begin By Analysing Your Business

Before beginning any acquisition process it is vitally important to carefully analyse and understand your business. 

Understand Your Strengths and Weaknesses

Consider your business’ key strengths. What is it that you do exceptionally well? What makes you stand out from your competitors? Is it that you sell a market-leading product? Maybe it’s the degree of technological automation integrated into your administrative processes?

Identifying your business’ weaknesses is also of great importance. What is holding you back? Are you having challenges retaining staff over the long term? Are you too slow to develop and launch new and innovative products?

An understanding of your business’ strengths and weaknesses will help you identify what benefits your business can bring to a potential acquisition target, as well as what benefits a potential acquisition target can bring to you. 

Consider Your Business’ Financial Position. 

Next, it is important to look closely at your business’ current financial position. 

As part of this, consider how much cash is freely available to invest in acquisitions. Also, identify the level of funding that is available from other sources including bank loans or shareholder capital. From this, a clear picture should begin to develop of the amount of money that your business will have available to invest in acquisitions. 

By thoroughly analysing your business’ strengths, weaknesses and financial position, you will be well on your way to making smart strategic acquisitions that provide long term benefit.

Define Your Search Criteria and Develop a Target List

Backed by an analysis of your business, the next step is to develop your search criteria and to build a list of target companies.

Defining Your Search Criteria

Your search criteria could be based on many factors including industry, geographical penetration, customers, product lines, revenues or enterprise value. 

In order to drive maximum value from your acquisitions, it is important to ensure that your search criteria are referenced against your business’ own strengths, weaknesses and financial position. For example, based on an analysis of your business’ financial position, you may determine that your acquisition targets should have an enterprise value of between $10 million and $20 million. Your transaction advisor can help to ensure your search criteria provide ample scope to source multiple opportunities, whilst being specific enough to include those targets that present the best value to your business.

Next it is important to work with your transaction advisor to rank your search criteria in order of their importance to you. In doing this, it pays to think carefully about which criteria, if met, will drive the greatest value for your business. Ranking your search criteria will help to provide clarity later on in the acquisition process should you need to pick between two seemingly similar opportunities.

Developing a Target List

Your search criteria will provide the tools necessary to build a list of acquisition targets. 

Conducting research on potential targets with the assistance of your transaction advisor will assist you to select and rank companies according to your search criteria.

When developing a target list, it pays to look far and wide, beyond those businesses that may already be known to you. By focusing only on those businesses that are top of mind you may ignore a whole host of companies that could present great strategic acquisition opportunities. Your transaction advisor can assist in this regard through the use of a range of databases and deal sourcing platforms.

Make Contact

It’s now time to make contact with your list of target companies. 

There are many considerations that need to be made before during and after making contact. Below are just a few of these.  


Your transaction advisor should always make the first contact with your target companies. As an intermediary, your transaction advisor can assess the interest level of each of your target companies under the veil of confidentiality. Then an assessment can be made by you and your transaction advisor on which target companies to continue discussions with.

It is always recommended that formal confidentiality terms be agreed to between you and those target companies that you wish to continue discussions with as soon as possible after initial contact is made. This not only provides protection to both parties, but also helps to build trust.

Face-to-Face Meetings

Should you and your target companies agree to proceed beyond your initial conversations, it is important to meet in person. This helps to build rapport, trust and to progress to a more serious level of discussion. 

It is wise to prepare a format or agenda for these meetings to ensure they are a productive use of time, and so your meetings help with the decision making process for both parties.

It is important to be accompanied by your transaction advisor in all face-to-face meetings. Your transaction advisor can help to assess the intentions of your target companies, and collate valuable information to help in an assessment of each business.

Continual Evaluation of Your Target Companies

From initial contact through to your preliminary meetings with your target companies, constant evaluations should be made by you and your transaction advisor to ensure that your target companies fit your search criteria and present a smart strategic opportunity for your business. Sometimes information may expose itself during early discussions that alter your initial perception of an acquisition target in a negative way. Appropriate action should be taken early to promptly end discussions if this happens. 


Skillful negotiation is paramount to the success of any acquisition. Key considerations that should be made are discussed below.


Company valuations are a powerful tool for negotiating with acquisition targets. Your transaction advisor can provide advice on the value of each target company. This advice will help you to prioritise acquisition opportunities and assist in ensuring you maximise your return on investment from any acquisitions that are completed.

Future Role of Current Directors and Shareholders

Consider what ongoing support is required from the current directors and shareholders of your target company. Are the current directors and shareholders hands-on in the operation of the business? If so, what role should the current directors and shareholders play post-settlement to ensure all business knowledge and personal goodwill is transitioned to you as the new owner. Your transaction advisor can help to negotiate this.

Also consider what restrictions should be placed over the current directors and shareholders post-settlement. Your transaction advisor in conjunction with your legal advisors can help you negotiate a suitable non-compete agreement if required.

Transaction and Payment Terms

Together with your transaction advisor and legal advisors, consider appropriate transactional terms. Common items to consider include the treatment of property and equipment leases, employee entitlements and work in progress. 

It is also important to negotiate suitable payment terms. Although many sellers will demand full payment on settlement, it is useful to look at other payment options like earn-out arrangements or vendor financing. Your transaction advisor can help you negotiate smart payment terms that lower your exposure to risk and increase your long term benefit from a strategic acquisition.

Complete Due Diligence

Once all transactional terms are agreed to in principal, it is important to conduct a thorough due diligence process. Due diligence is an important step to ensure that all costs, benefits and risks associated with your investment are in line with your expectations.

It is important to work closely with your advisors throughout the due diligence process. Your advisors will work with the seller and their advisors to review all key documentation and to make a final determination on the quality of the investment opportunity.

Finalise Contracts and Settle

Upon the successful completion of a due diligence process, your legal advisors will be in a position to finalise contracts for your transaction with the seller’s legal representative. Once all papers are signed, settlement will take place on the agreed date.


The integration of an acquired company with your original business is fraught with challenges, however it is vital that this process is executed effectively to ensure you realise the synergies and growth on offer from your investment.

The considerations required throughout the integration process will vary depending on your circumstances, however below are a few common considerations that should be made.

Workforce and Management

Work with your transaction advisor to plan how to best integrate your combined workforce and management. It’s important to consider:

  • Opportunities that may exist to eliminate duplication of roles;

  • Suitable management incentives to assist with the transition, and;

  • The effective transfer of superior skills and knowledge between all staff.

Systems and Software

Assess what can be done to integrate and standardise systems and software. Key systems and software to consider include:

  • Accounting software;

  • Customer relationship systems;

  • Staff management systems, and;

  • Operational systems and procedures.

In doing this, consider what systems and software offer the best solutions for the combined business. Evaluate the costs associated with any changes, including hidden costs like lost productivity in order to weigh up the costs and benefits involved in any adjustments.

Business Plan

Update your business plan to incorporate your integration targets, as well as new goals and budgets for the combined business. Work with your advisors to ensure your progress against this plan is measured and reviewed periodically, and that adjustments are made if and when they are deemed necessary.

Find Out More

Groves & Partners are expert transaction advisors, with significant experience in acting for clients who are looking to undertake strategic acquisitions.

If you or your client are interested in undertaking strategic acquisitions and would like to know more about how we can work with you, contact us on 1300 892 717 (+61 2 7208 7970) or email info@groves.com.au.

Written by Stephen Groves