Acquisitions can create a huge amount of value for a company. They can also destroy as much if not executed and integrated properly.
Many of our portfolio companies look to either accelerate their product roadmap or expand to new customer segments via strategic acquisitions. Rather than reach out to companies one-off, we’ve learned it’s best to have a structured, outbound-oriented strategy to engage potential acquisition targets.
Many CEOs we partner with have little prior M&A experience. As we get to know prospective CEOs, we share some of our past case studies of how M&A can accelerate growth and increase the available opportunity for their firms. A recent example involved a CEO who wanted to identify and acquire attractive companies to expand their product capabilities and bring them into new markets. However, the CEO did not want a lengthy search and M&A process to distract from growing the core business (which was already growing well organically).
With strategic support from the company CEO and CFO, the M33 Growth team developed a structured M&A market scan and subsequently engaged with potential acquisition targets.
- Identify (Phase I) – in partnership with company management, define the M&A strategy and then survey the market landscape for suitable targets. In the particular example mentioned above, we identified 100+ potential targets. Rather than a “spray and pray”, on-the-go approach, we developed a full market map, enabling us to prioritize key products, markets, and ultimately targets to pursue.
- Engage (Phase II) – Our sourcing team reaches out to selected targets to gauge business fit & interest. In short order, we sent 500+ emails, had 50+ intro phone calls, and conducted 16 on-site visits.
- Execute (Phase III) – Our team works with management as well as the target’s management to drive deal process & terms forward. We worked with our CEO and CFO to select the most attractive near-term acquisitions and supported key negotiations and diligence. This allowed the team to keep their focus on running the business while diligence proceeded.
When we made the investment in CLEAResult in 2012, the company was similar size to its largest pure play competitor. Through M&A within 2.5 years, CLEAResult’s founders were able to achieve their vision to become the clear market leader (nearly 2x the size of that same competitor) in the energy efficiency services space. They were able to increase their EBITDA by nearly [2x (~15M)]. Collectively CLEAResult acquired these businesses for [$90M]. This additional scale contributed to CLEAResult’s ultimate exit at over [15x] EBITDA.