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How to buy a company like Oracle does

by on December 4, 2013

requirements-wishlistBuying a company is a lot like buying a house only much more complicated.  Every buyer should have a criteria, just like you would if you were buying a house. You want to live in a certain area, have your kids go to specific schools, you need so many bedrooms, you want these features, and so on.  You need to think of buying companies the same way.  Oracle does.

Definition of Acquisition Criteria

The other day Divestopedia had a piece on Investment Criteria or what I call Transaction or Acquisition Criteria.  It was its term of the day and described this way:

Investment criteria are the defined set of parameters used by financial and strategic buyers to assess an acquisition target.

Sophisticated buyers will usually have two sets of criteria:

  • The parameters that are disclosed publicly to intermediaries such as investment bankers, so they know what the buyer is looking for in order to source deals that fit; and
  • The parameters developed for internal review that allow a buyer to quickly determine if the acquisition should be pursued further.

The most common publicly disclosed investment criteria include the geography, size of the investment or company targeted, and industry. Some buyers also disclose criteria regarding the investment type which may include management buyouts (MBO), distressed opportunities, or succession situations. The primary purpose of the criteria disclosed to the general public is to gather as much deal flow as possible.

Experience

As a buyer of companies I needed more eyes looking for prospects and I utilized all the tools I could.  That meant working with investment bankers. Investment bankers love to represent sellers and if they knew what a buyer was looking for it helped them gain clients because they could tell a prospect that they knew a buyer was looking for a company like theirs.

Internal Criteria

The Internal Criteria is a list of feature, functionality and criteria for any desired acquisition. This will include factors such as underlying code, location of target, size of target, impact on cash burn, and integration issues for sales, business, and technology.  The Acquisition Criteria will be used as a yardstick for all target evaluations.  Some targets may be easily eliminated while some may be compelling even if they don’t meet each item.

Here is an example of what Oracle looks for:

Oracle Deal Criteria

Slide was posted to Oracle’s website on September 13, 2005 regarding its acquisition of Siebel Systems

Summary

Know what you’re looking for.  Don’t just look at a company and wonder if it’s a good fit.  Do your work in advance.

p.s.

If you’re wondering how you build a company that you can sell for a premium in a few years, contact me to discuss the Valuation Amplification Process.

I also invite you to download the white paper and learn the 5 step process on How to Quickly Increase Your Valuation: a Proven 5 Step Process.  http://www.therevenuegroup.net/free-offer.html

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From → M&A, Strategy, Valuation

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  1. VCs Don’t Know How to Buy Companies | Mike Rogers

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