Psychologists have undertaken various studies to assess the strategic decision making process of senior executives. The general gist is that business leaders often make strategic decisions based upon intuition and that the decision making process is more of an art rather than a science.

This type of decision making process is more typical of business leaders as opposed to business managers. Managers typically, like to have strong form and structure and follow a process, whereas leaders are more instinctive. The other major difference between leaders and managers is that leaders are visionaries who inspire and have followers, whereas managers execute and have subordinates.

When we look at the decision making process involved in acquisition selection, there are a number of issues that are worth considering.

Equity Boss is in a fortunate position with regard to understanding the decision making process involved in strategic acquisitions. Personally, my viewpoint is that during the qualification of an acquisition the wrong information is often interpreted by the wrong people, resulting in poorly formed decisions.

Let me elaborate: one of the most common complaints from higher profile organisations in our sector is that they are bombarded, on a weekly basis, by brokers presenting companies to them who wish to be acquired. The vast majority of the time, the strategic fit has been given little thought when the target list was originally drawn up and as a consequence, the vast majority of these ‘opportunities’ are non-starters.

The sheer number of companies for sale that are being presented to larger organisations has resulted in a number of reactions by the potential acquirer which, although understandable, do not serve them well in identifying the very best acquisition growth opportunities.

• Teasers are given to ‘Managers’ rather than ‘Leaders’ for early stage qualification.
• Managers look to make ‘safe’ decisions; ‘Leaders’ want to make the ‘right’ decision but are willing to take risks.
• Opportunities to acquire, where the target company is outperforming the buyer, are often not believed and are dismissed without further investigation.

One of the most interesting aspects of gaining feedback from organisations is hearing the reasoning behind their decision not to investigate an acquisition opportunity. This is an important step for us as we are looking to qualify early and sort out the perpetual tyre kickers from the serious buyers. I won’t lie; some of the thinking does make me scratch my head in wonderment at times.

"We are not interested as the revenue to head count ratio is not what we would expect"

If only M&A was that easy! Just divide the revenue by the staff and, "hey presto!" there is the analysis. Amazing! I wish I had thought of that…..twenty five years ago! DOH!

"This company is highly profitable and is performing too well for us so we have qualified out".

So, what they are saying is, “Please bring us companies that are less profitable than we are as this company could make us ask ourselves some tough questions or make us look bad in comparison.”

"We are extremely busy at the moment with end of year sales; perhaps we could reconsider in a few months when we will be less busy".  So, what they are effectively saying is, “Please bring it back to me when I have less to do, if everybody else has turned it down.”???!!

Although I present the above examples partly for entertainment, they also contain a message: there are three main reasons why companies qualify out M&A opportunities in such an off-hand manner:

They are not interested in acquiring but are being nosey and want to try and identify the company. This is something we prevent immediately. The opportunities are being qualified by the wrong people within the organisation. If you are serious about making acquisitions, then such a task should be undertaken by the leaders and visionaries in your organisation, not the "Managers".

The company does not have any means of effective qualification because they do not have a true M&A Strategy. A true M&A strategy will allow a company to quickly identify a potential fit and will also have a criterion to sift the "Of interest for further investigation" from the "Not for us". However, despite assurances to the contrary from many management teams, the majority of companies do not have a fully developed M&A strategy. Yet they expect to be successful, go figure.

It`s a bit like me driving to a new location in a foreign land without a map or sat nav. I would soon get lost. Who am I kidding?! I would soon get lost in this country!!!