MOST Analysis

Mission Statement

All business investors are “financial” investors – the real question is how “strategic” is their ability to leverage the assets of the target. Providing practical guidance on approaching a business target and conducting initial due diligence depends on the investor’s criterion, competencies, and execution bandwidth. At this point, you will have identified a target or group of targets and you are attempting to learn enough about the target to determine whether to proceed with developing a meaningful indication of interest. Of course, an active seller is likely prepared for the sale process and represented by an advisor who is postured to provide the financial and operating information necessary for investors to quickly determine the suitability of a deal (i.e., a pitchbook and defined protocols for communication and information access). However, many desirable targets may not be seeking a sale because business conditions are favorable, and their businesses have been managed to provide options to the owners regarding continued independence and turn-key ownership and management succession. If the former, you, as a prospective buyer may have already pinged on the radar of the seller, and if the later, you have mined for target opportunities and are ready for the next step to accomplish an acquisition.

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Objectives

01. Initial Business Research: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
02. Differentiation (Active Process): departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
03. Best Impressions (Active Process): departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
04. Research (Inactive Process): departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
05. Initial Contact – Develop a Narrative (Inactive Process): departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
06. Written Introductory Approach (Inactive Process): departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
07. Phone Calls (Inactive Process): departmental SWOT analysis; strategy research & development. 1 Month
08. In-Person Visits (Inactive Process): departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
09. Persistence is Key (Inactive Process): departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
10. Introductions (Inactive Process): departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
11. Upon Contact – Non-Disclosure Agreement: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
12. Upon Contact – Set up Initial Engagement: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month

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Strategies

01. Initial Business Research: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
02. Differentiation (Active Process): Each individual department head to undertake departmental SWOT analysis; strategy research & development.
03. Best Impressions (Active Process): Each individual department head to undertake departmental SWOT analysis; strategy research & development.
04. Research (Inactive Process): Each individual department head to undertake departmental SWOT analysis; strategy research & development.
05. Initial Contact – Develop a Narrative (Inactive Process): Each individual department head to undertake departmental SWOT analysis; strategy research & development.
06. Written Introductory Approach (Inactive Process): Each individual department head to undertake departmental SWOT analysis; strategy research & development.
07. Phone Calls (Inactive Process): Each individual department head to undertake departmental SWOT analysis; strategy research & development.
08. In-Person Visits (Inactive Process): Each individual department head to undertake departmental SWOT analysis; strategy research & development.
09. Persistence is Key (Inactive Process): Each individual department head to undertake departmental SWOT analysis; strategy research & development.
10. Introductions (Inactive Process): Each individual department head to undertake departmental SWOT analysis; strategy research & development.
11. Upon Contact – Non-Disclosure Agreement: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
12. Upon Contact – Set up Initial Engagement: Each individual department head to undertake departmental SWOT analysis; strategy research & development.

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Tasks

01. Create a task on your calendar, to be completed within the next month, to analyze Initial Business Research.
02. Create a task on your calendar, to be completed within the next month, to analyze Differentiation (Active Process).
03. Create a task on your calendar, to be completed within the next month, to analyze Best Impressions (Active Process).
04. Create a task on your calendar, to be completed within the next month, to analyze Research (Inactive Process).
05. Create a task on your calendar, to be completed within the next month, to analyze Initial Contact – Develop a Narrative (Inactive Process).
06. Create a task on your calendar, to be completed within the next month, to analyze Written Introductory Approach (Inactive Process).
07. Create a task on your calendar, to be completed within the next month, to analyze Phone Calls (Inactive Process).
08. Create a task on your calendar, to be completed within the next month, to analyze In-Person Visits (Inactive Process).
09. Create a task on your calendar, to be completed within the next month, to analyze Persistence is Key (Inactive Process).
10. Create a task on your calendar, to be completed within the next month, to analyze Introductions (Inactive Process).
11. Create a task on your calendar, to be completed within the next month, to analyze Upon Contact – Non-Disclosure Agreement.
12. Create a task on your calendar, to be completed within the next month, to analyze Upon Contact – Set up Initial Engagement.

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Introduction

The ‘target approach’ stage in M&A is of utmost importance as it sets the tone for the entire acquisition process and significantly impacts the potential success of the transaction. The way the target is approached is vital for several reasons.

Firstly, the initial approach establishes a positive relationship between the acquiring company and the target. A well-executed approach fosters trust, open communication, and mutual understanding. It lays the foundation for productive negotiations and collaboration throughout the transaction.

Secondly, the target approach plays a crucial role in gaining the target’s cooperation. Approaching the target in a professional, respectful, and well-prepared manner increases the likelihood of the target being receptive to further discussions. Conversely, a poorly executed approach or an aggressive stance may lead to resistance, making it challenging to move forward with the acquisition process.

Moreover, the target approach stage provides an opportunity to request access to crucial information for due diligence. Demonstrating a genuine interest in the target’s business and conveying the importance of the information sought enhances the chances of the target providing the necessary insights into their operations, financials, contracts, and potential risks.

Confidentiality and trust are also paramount during the target approach. Emphasizing a commitment to maintaining the target’s confidentiality and protecting sensitive information is crucial to establishing trust. A breach of confidentiality during this stage can harm the transaction, lead to reputational damage, and hinder future deal-making opportunities.

Furthermore, the target approach stage allows for initial interactions that can provide insights into the target’s culture, management style, and employee dynamics. This early assessment of cultural fit is important as it helps the acquirer evaluate compatibility and anticipate potential challenges or synergistic opportunities during the integration process.

In cases where there are multiple potential acquirers interested in the same target, the way the target is approached becomes even more critical. A carefully planned and respectful approach increases the acquirer’s chances of standing out among competitors and winning the target’s preference and trust.

Finally, an improperly executed target approach, such as an aggressive or hostile approach, can trigger negative reactions from the target company and its stakeholders. This can lead to defensive strategies, counteroffers, resistance from management or shareholders, or even public backlash. A well-considered approach helps minimize such negative reactions, increasing the chances of a smoother negotiation process.

Overall, the target approach stage sets the tone for the entire M&A process, influences the target’s willingness to engage, and plays a crucial role in establishing a cooperative and constructive relationship. A thoughtful, respectful, and strategic approach enhances the chances of successful negotiations, due diligence, and post-merger integration, ultimately leading to a more successful acquisition.

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Case Study: Microsoft’s Poor Approach to Acquiring Yahoo (2008)

At the time, Microsoft made a public offer to acquire Yahoo for approximately $44.6 billion. However, Microsoft’s approach was criticized for being aggressive and lacking proper communication with Yahoo’s management and board of directors. The offer was made public before any substantial discussions had taken place between the companies, which caught Yahoo off guard and led to a strained relationship.

Yahoo’s management and board felt that Microsoft’s approach undervalued the company and did not properly consider its potential for future growth. The lack of a private and collaborative negotiation process created animosity and mistrust between the companies, making it difficult to reach a mutually beneficial agreement.

Additionally, Microsoft’s attempt to bypass Yahoo’s management and appeal directly to its shareholders further exacerbated the situation. This move was seen as an attempt to force Yahoo into accepting the deal without allowing the company’s leadership to evaluate other alternatives or negotiate better terms.

As a result of Microsoft’s poor approach, Yahoo’s management and board of directors rejected the offer, leading to a prolonged period of uncertainty and instability for both companies. The failed acquisition attempt had a significant impact on Yahoo’s market value and ultimately led to a decline in its overall performance and competitiveness.

This example highlights the importance of a thoughtful and respectful approach when approaching a target in M&A. Proper communication, engagement with management, and transparent negotiation processes are vital to building trust, fostering cooperation, and increasing the chances of a successful acquisition.

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How target approaching has evolved over the years

Approaching targets in M&A has evolved significantly over the years, reflecting changes in business practices, technology, and regulatory frameworks. Here is an overview of how the approaches to targeting companies in M&A have changed:

Traditional Market Research

In the past, companies relied on traditional market research methods to identify potential targets. This involved conducting industry analysis, identifying companies with strategic fit or growth potential, and reaching out to them through personal contacts or industry networks.

Shift to Data-driven Approach

With the rise of technology and the availability of vast amounts of data, the approach to targeting has become more data-driven. Companies now leverage advanced analytics, machine learning, and big data to identify potential targets based on specific criteria such as financial performance, market share, customer demographics, and synergistic opportunities.

Professional Intermediaries

Over time, the role of professional intermediaries, such as investment banks, has become increasingly important in M&A transactions. These intermediaries assist in identifying potential targets, facilitating negotiations, conducting due diligence, and structuring deals. They provide valuable expertise and access to a broader network of potential targets.

Enhanced Due Diligence

Due diligence, the process of assessing a target company’s financial, legal, operational, and commercial aspects, has become more thorough and comprehensive. Advances in technology and increased availability of information have allowed acquirers to conduct in-depth due diligence, including financial audits, legal reviews, market analysis, and cultural assessments.

Competitive Bidding

In today’s M&A landscape, competitive bidding has become more prevalent. Rather than relying solely on friendly negotiations, companies may participate in auctions or bidding processes to acquire their desired targets. This approach can drive up the acquisition price but allows acquirers to select the most favorable deal structure.

Regulatory Scrutiny

Regulatory oversight and antitrust regulations have become more stringent over the years, especially in large-scale M&A transactions. Companies now face increased scrutiny from regulatory bodies, requiring them to navigate complex approval processes, provide extensive documentation, and address potential competition concerns.

Focus on Strategic Fit

In recent years, there has been a shift toward targeting companies that align strategically with the acquiring company’s goals and objectives. This strategic fit goes beyond financial considerations and includes factors such as technological synergies, market access, product diversification, talent acquisition, and geographic expansion.

Emphasis on Cultural Integration

Recognizing the importance of cultural integration, companies now place more emphasis on assessing cultural compatibility when targeting potential acquisitions. Ensuring alignment of values, management styles, and corporate cultures has become crucial to the success of post-merger integration.

Digital Transformation

The digital era has had a profound impact on the approach to targeting in M&A. Companies now consider the target’s digital capabilities, technological infrastructure, intellectual property, and data assets as critical factors in evaluating their suitability for acquisition.

Increased Collaboration

Collaboration and strategic partnerships have gained prominence in M&A targeting approaches. Instead of pursuing outright acquisitions, companies may opt for joint ventures, alliances, or minority investments to access complementary capabilities, technologies, or markets.

These changes reflect the evolution of M&A practices, driven by advancements in technology, a greater emphasis on strategic alignment, regulatory developments, and a more sophisticated understanding of the factors that contribute to successful mergers and acquisitions.

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Active Vs Inactive Approach

In the context of acquisitive growth, the terms “inactive” and “active” are often used to describe different approaches or strategies that companies may take when pursuing a target company for acquisition. These approaches refer to how aggressively a potential acquirer engages with the target company and its management during the acquisition process.

1. Active Approach:

In an active approach, the acquiring company takes a more proactive and assertive stance in pursuing the target company. This typically involves direct and open communication with the target’s management team, expressing a strong interest in acquiring the company, and potentially making a formal offer or pr