How to Build an Efficient Pre-

deal Process with Pipeline

Management
 Foreword

M&A will never be 100% successful and we learn from every

deal we do, and so not to pick on any specific deal, but I’ve
learned, based on relative success of deals we’ve done in the
past, is making sure the strategy drives the M&A, as opposed
to the M&A driving the strategy.

Don Harrison,
VP of Corporate Development, Google

The most successful acquirers in M&A take a proactive, systematic and repeatable
approach to screening targets and originating deals; these are core M&A best
practices. They actively manage a pipeline of suitable acquisition targets rather
than making knee-jerk reactions to deals. Successful acquirers screen potential
acquisition targets in line with the organization’s overall strategy.

Acquirers that adopt a systematic and repeatable approach to their M&A process
can benefit from lessons learned on past deals, and therefore can improve their
deal-making capabilities on an on-going basis. While no deal is the same and it is
impossible to predict all deal eventualities across the deal life-cycle, it is advisable
to build a core strategy around pre-deal screening and processes, to safeguard
against unwanted surprises and loss of value. The crux of the matter is that
pursuing acquisitions that do not fit with an organization can cause strategic and
cultural issues or may destroy value rather than creating it.

Increasingly, companies are pursuing growth strategies with a range of initiatives

such as corporate venturing, partnerships, alliances and joint ventures (in addition
to traditional M&A activity). The problem here, is if teams are working off of different
target pipelines and lack a universal view of the targets being considered, there
can easily be duplication of effort. A benefit of teams having access to a universal
pipeline is decisions can be made on the best way to pursue a target. Furthermore,
if everyone can access the pipeline it helps support a collaborative approach to
pipeline building and management.

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 The Six Stages of Pipeline Management
Identifying the right acquisition target is arguably the most fundamental component of a successful
M&A campaign. Adopting a repeatable and systematic approach to M&A can greatly increase the
efficacy of an M&A campaign and prove extremely valuable when it comes to identifying the right
acquisition targets.

Define Strategy Identify Key Structure Consider the Visualize Consider a

Criteria Pipeline Stages Motives Reporting Digitalized
Approach

Define Strategy

Successful M&A requires that
the right deals are pursued with
a well-judged approach to target
screening – with successful
target screening relying on a
well-defined acquisition strategy.
An M&A strategy can help
identify the most attractive
market sectors, determine
whether organic or acquisitive
growth is best (and therefore,
whether M&A is suitable at all)
and assist in tackling the typical
hurdles associated with an M&A
campaign.
To become a successful
acquirer, an organization should
utilize an established set of best
practices. A key best practice is
taking time to build a well-
defined acquisition strategy
before any checks are signed.
To do so, an organization should
start by contemplating a number
of questions – this process
triggers discussion around the
rationale for pursuing an M&A
campaign and can uncover some
potentially expensive truths.
Establishing a clear vision from
the outset and linking each
deal to the overall corporate
strategy enables an organization
to be proactive and maximizes
the likelihood of identifying
the most suitable targets
when building an acquisition
pipeline. Research conducted by
McKinsey suggests successful
acquisitions align closely with an
organization’s growth strategy.
Organizations that accelerate
revenue growth through
acquisitions do not treat deals
as opportunistic events. Rather,
they use several different deal
models—all linked to their overall
growth strategy.

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 Key Questions
1. Why are we doing this?
2. What are our alternative options (outside of
M&A)?
3. What lessons have we learned from previous
acquisitions/M&A projects?
4. Could growth via acquisition provide a good
strategic fit and align with our objectives?
5. Can any growth objectives be achieved more
effectively via acquisition than organically?
6. What products/technology requirements
does our road map require? (Note: balance
the cost of acquiring such products/
technology against the cost of build options
– buying may not provide 100% of what you
are looking for).
7. What products and/or services could we
conceivably acquire via acquisition?
8. Do we understand the structure, size, growth
and trends of existing markets we are in?
9. How much risk are we willing to take –
what is acceptable to shareholders and
stakeholders?
10. Are we prepared to invest in pre-revenue/
early-stage companies?
11. What types of people, skills and experiences
do we need that could be obtained via
acquisition?
12. What geographies do we want to operate in?
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(Note: as part of this, consider the order of
preference for international market entry).
13. Are we prepared to enter significantly
different markets?
14. What synergies could typically be realized
from an acquisition in the sector(s) we are
considering? 
15. What is the maximum size of deal we are
comfortable with?
16. What is the minimum size of deal we are
prepared to dedicate resources to? 
17. What level of funding is readily available?
What level of additional funding could be
obtained, if necessary?
18. How many acquisitions can we execute and
integrate in a year without over committing?
19. What financial returns do we want to achieve
over the next X years? What financial
metrics are most important to us?
20. Are we considering a particular acquisition
merely to prevent a competitor from
accessing an opportunity in the market? If
so, what is the value of this competitor not
accessing the opportunity?
 Acquisition Types
Acquisitions may fall under a number of categories – it is useful to understand these since it can help
contextualize your M&A strategy.

Synergistic A synergistic acquisition target may/may not compete directly in the same geographic
market but be involved in the same line of business in terms of products/services and
end markets/customers.

A synergistic acquisition will naturally offer immediate synergies in terms of added

customers and market share, streamlining of office/admin functions and other
operational and purchasing efficiencies.

Strategic A strategic acquisition target offers similar products/services to the acquirer, but sells
to other end markets or offers different products but sells to the same end markets.

The cost synergies available from a strategic target are usually less significant –
however, potential revenue synergies and growth opportunities may be vast.

Complementary A complementary acquisition target is outside the acquirer’s core competencies.

A complementary acquisition could provide an element of overlap in products/

services, markets or capabilities, but is unlikely to offer any significant synergy value
(where available, synergies are likely indirect and involve sharing resources/know
how/ operational best practices).

Diversification A strategic acquisition target offers similar products/services to the acquirer, but sells
to other end markets or offers different products but sells to the same end markets.

The cost synergies available from a strategic target are usually less significant –
however, potential revenue synergies and growth opportunities may be vast.

Transformative A transformational acquisition (associated with creating value by fundamentally

transforming core operations, processes and/or business units) can offer significant
potential for innovation and breakthrough performance.

However, transformational acquisitions involve complexity that extends beyond the

capabilities of management –providing the potential to bring operations to a standstill
if not properly managed. It is vital organizations considering an acquisition of this
nature have the sufficient people-resources to manage it.

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 Identify Key Criteria
Market Attractiveness and Target Metrics
Once an organization has defined its overall (and supporting M&A) strategy it can start identifying the right
market sector(s) to focus on. Taking a market-driven approach helps select targets in markets that are
stable, growing, attractive to consumers and most likely to deliver the expected deal ROI or desired revenue
growth, etc. As part of this process, future market demand should be considered –to avoid acquisition of
a target in a declining market.

In identifying the right market(s) there is an element of crossover with the process of defining an M&A
strategy. For example, answering questions such as “what geographies do we want to operate in?” and
“are we prepared to enter significantly different markets?” (these question should also be asked when
defining the M&A strategy) can help formulate market-driven criteria.

Once these criteria are established (criteria may change over time and/or depending on the nature of the
deal being pursued) a deeper-dive research process can begin. Ideally market-criteria is refined as more
knowledge about the market(s) is defined. Ultimately, defining market criteria helps appraise markets
against the strategic rationale underpinning the M&A campaign – and therefore, helps identify suitable
acquisition targets.    

These criteria should be outlined and discussed as the team defines its overall strategy.

Data Sources
As you identify your key criteria, you should use external data sources to aggregate target information.
Tools such as Pitchbook, Crunchbase, Capital IQ, Bloomberg, Factset and others are useful.

These databases are a starting point, allowing your M&A team to massage the data and to pull metrics
specific to your new M&A strategy.

For any targets you receive from third-party advisors, you must benchmark this target data against
databases and data sources.

Examples of the most common metrics associated with target companies include region, sector, sub-
sector, revenue, EBITDA, Enterprise Value and understanding the makeup.

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 Long List
While the end-goal of an M&A campaign may be the acquisition of just one target, it is very unlikely that
pursuing one target at a time is enough to result in a closed deal. Taking such an approach is risky and
could leave an organization back at the starting line if things do not go as planned.

Some estimates suggest that up to 100 potential targets may have to be screened to close one deal. This
is often called an initial “long list.” This long list should be built based on prior identified key criteria. This is
also called ”scouting” in some organizations.

Working to this estimate, one way to approach the building of an acquisition pipeline is to view it as a
funnel. There will potentially be hundreds targets at the beginning of the funnel but as the screening
process advances some are eliminated or not moved forward due to lack of fit against the M&A strategy
(remember, this is supporting the overall corporate strategy). The screening (elimination or advancement)
of targets is best managed by adopting a well-defined pipeline stage-gate process.

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 Structure Pipeline Stages
Defining a stage-gate process is a critical step in building efficiency around the pre-deal process. Once you
have defined a long-list, you should begin to plan out your M&A stages.

A Well-Functioning Stage-Gate Process Gives Your Team The Opportunity To

View M&A As A Tiered Approach

Detailed Signing &

Origination Initial Analysis Due Diligence Integration
Analysis Closing

PRE-DEAL EXECUTION POST-DEAL

When visualizing your M&A process, you should start by placing your stages into three main categories:

1. Pre-Deal

2. Execution

3. Post-Deal

Then you can define how and if the stages should be expanded.

Often, groups have 2-3 stages prior to the due diligence process and 1-2 after the deal has closed. This
allows you to determine which teams will be involved as the deal moves from stage to stage. Additionally,
acceptance criteria and approvals should be standardized for each stage, according to internal procedures,
ensuring all deals follow the same process.

To build an efficient, winning M&A process, we recommend beginning with the conceptual question of
whether a target could provide a strategic fit. This is the beginning of “Pre-Deal” process.

If the questions can be answered with an affirmative “yes” the target is moved from the long list into Stage
One – Origination (1). Here, the objective is to collate and analyze more detailed information in order to
support progressing the target to Stage Two –Initial Analysis (2). The information analyzed in Stage Two
likely includes documents available in the public domain – for instance, abbreviated financial statements,
annual reports, press releases, product/service catalogs, etc. The “origination” of this information can
come from private or public data sources and is sometimes provided by an investment bank or M&A
advisor.

If at the end of Stage Two, a target is still a good fit, it can progress to Stage Three – Detailed Analysis (3).
The purpose of this stage is to screen a target in more detail – typically using information not available in
the public domain requiring contact with the target and an NDA signed by the acquiring organization. It is
highly likely that a target will not be open to entering discussions around a potential sale – in such cases
this eliminates the target from the pipeline.

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 At this stage, an indicative or “ballpark” valuation can be conducted – this is likely based on abbreviated
financial information bench-marked against comparable company data and is then subject to a number of
iterations as more information on the target is obtained further along in the pipeline process. Simultaneously,
a more detailed appraisal of the potential synergies on offer should be conducted. A word of caution,
however – if synergies are included in the valuation of a target these should be treated with care, to avoid
over-pricing.

When a target is open to entering discussions, an initial target questionnaire can be used – this is essentially
a precursor to a move into Stage Four - Due Diligence Phase (4). It is during this stage that due diligence is
completed - a formal exercise that serves the purpose of providing essential information to the acquiring
organization. An initial target questionnaire enables a deeper dive into the financials and operations of a
target and should help determine if a target should proceed to a more formal stage of the deal process (the
issuance of a letter of intent/term sheet).

Whether an M&A team has a “License to Sign & Close” (i.e. the target is considered a “go” rather than a
“no go” following the conclusion of detailed due diligence) ultimately depends on the key decision makers
within an organization (likely to be the board of directors/shareholders and key stakeholders). Because the
execution stage is based on this decision, you may move into the post-deal stages, such as Stage Five –
Signing and Closing (5) and then to Stage Six – Integration (6).

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 Consider Motives
When defining your pipeline management, as an organization you should be mindful of the motives on
which targets are moved through each stage of the pipeline. Three motives could be considered here.

1. Proactive
1. Proactive acquisitions are most likely to be
Proactive successful (in terms of being closed and
providing a suitable strategic fit) and they
directly address points raised during strategic
analysis. These acquisitions come from
proactive target screening and with thought
given to how the acquisition can support your
organization’s strategic objectives.

As part of the screening process, the acquirer

should consider desirability (what synergies
are available), feasibility (can the deal be
2.
closed) and validity (compare purchase price to
Reactive
expected future performance and synergies –
does this seem reasonable?).

3.
Opportunistic

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 2. Reactive
Reactive acquisitions occur when the acquirer
1. responds to an approach from a seller. In such
Proactive a situation, the seller (perhaps through an
M&A advisor) typically approaches numerous
potential buyers in the same or related industry.
While a potential acquirer is usually given a
reasonable amount of time to consider such
an opportunity (and can therefore screen the
target in context to strategic objectives without
making a knee-jerk reaction) the acquisition
process may become competitive and provide
little scope for negotiating on price and deal
2. structure (e.g. deferred consideration or earn-
Reactive outs may not be accepted).

Furthermore, it is unlikely the opportunity is

a compelling strategic fit. Nonetheless, an
organization in the market for acquisitions
can feel obligated to pursue the deal because
it “needs to buy something”. This is a
dangerous strategy and likely to result in crisis
management.     

3.
Opportunistic

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 3. Opportunistic
Opportunistic acquisitions are the least
1. likely to succeed in terms of enhancing an
Proactive organization’s operations and have the lowest
probability of closure. Such acquisitions occur
when an organization is approached with
a seemingly attractive deal. Typically this
comes from seller in a non-related industry
and it is only attractive in terms of price or
deal structure. While such an opportunity may
ostensibly represent a means of diversification
(which may be one of the over-riding objectives
of an organization’s M&A strategy) such deals
2. should generally not be pursued for the reason
Reactive that the target is very unlikely to relate to a well-
defined M&A strategy or provide a compelling
strategic fit. 

3.
Opportunistic

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 Visualize Reporting
It can be challenging to manage multiple data sources, metrics, and historical deal data. The best
solution is a collaborative software tool designed for M&A. This ensures key metrics and outputs are
easily accessible, including:

Target Scoring
There is a tendency for organizations to place too much
emphasis on the minutiae of financials and valuation
metrics. However, history shows acquisition failures are
most likely to be attributed to sidestepping key success
factors that no end of spreadsheet analysis can protect
against – these factors include culture, leadership,
management and overall strategic fit.

Try to define 4-6 key scoring metrics, and score these

for each individual target in your long list. As you move
targets from the long list into your first stages, reporting
on them allows you to strategically focus on the right
targets.

Weekly Dashboard
Collaboration across your M&A team is essential, and this
depends on every person having access to core and key
data. Dashboards provide a compilation of reports, based
on the key metrics needed for your M&A team. Often
these use visualizations such as graphs to summarize
important, key information. You will often see pie charts
for revenue per region or country, targets per sector and
other similar criteria.

Individual Target Cards

In addition to a weekly dashboard, you should build a
method that allows you to create reports on individual
targets. This makes it easy to provide an investment
committee or board of directors with a summary of a
specific deal. Having a reporting database setup and
integrated saves time and ensures accuracy.

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 Consider a Digitalized Approach
Managing an acquisition pipeline befitting of today’s M&A characteristics is increasingly becoming a
juggling act of speed – while at the same time requiring management of confidential information and
demonstrable strategic thinking. The key to maintaining consistent high-volume deal flow and effective
pipeline management is a systematic and repeatable approach.

Taking the time to structure this process, the workflow pattern and the standard documents used to
screen targets ensures informed and timely decisions are made and ultimately, provides a greater chance
of following through with the right targets.

Defining a pre-deal process first is paramount to building an efficient M&A machine

Each stage in the pipeline should incorporate clear entry and output criteria that must be met before a
target is moved through the pipeline stages (or “killed” if deemed to be unsuitable).

Throughout the M&A pipeline process, a vast amount of information is shared amongst the deal team. It
is essential this information is securely stored and managed to prevent deal compromise. A cloud-based
solution gives all team members, advisors and third-parties secure access and collaboration capabilities
from any location and ensures the latest data is used.

Too many organizations attempt to build an efficient pre-deal M&A process and pipeline with disparate
tools. Unfortunately, this results in miscommunication, reporting lags, and a lack of collaboration.

Organizations who are committed to building a repeatable and systematic pipeline management workflow
should consider using a purpose-built and designed M&A software solution such as Midaxo.

With Midaxo, organizations get a software solution designed with their needs and challenges in mind.
Customizable dashboard, ease of collaboration, secure communication, customized access rights and
permissions, one-click data sharing, and big data powered reporting streamlines the pre-deal process and
ensures target screening and analysis is easier and efficient.

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 Contact Us To See Why Midaxo Is An
Essential Tool In Building An Efficient
M&A Process.
info.midaxo.com/contact-us