Successful Target Search
How BCG Helps Find Strong M&A Candidates

This brochure—one of a series of eight describing BCG’s capabilities
in deal transaction and integration—explains why a disciplined
approach to target search is essential to the success of acquisitions.
The brochure describes in detail the three phases that constitute aneffective target search process: mapping out the industry segments
where attractive candidates can be found; pinpointing specific company
targets from the long list generated in the mapping phase; and prioritizing
the next moves by matching the shortlisted candidates to corporate
strategy in order to determine factors such as the best timing for a deal
and whether the deal should be a “big bang” or a “string of pearls.”
Because target search is just one stage whose outcomes affect the longterm success of an acquisition, the brochure connects to other stages
such as due diligence and post-merger integration. And it includes lively
case studies to bring the concepts of target search to life.

Introduction
M&A is not a sure thing. In fact, the most recent study by Boston
Consulting Group shows that more than 55% of all M&A deals
actually destroy shareholder value.

Yet there are companies that get outsize value
from their acquisitions. BCG’s research reveals
that time and again, such companies produce
strong gains for their shareholders when theybuy or merge with other businesses. They earnstrong returns no matter how well a target has
performed and regardless of the economic
environment.
So what differentiates those companies fromthe rest? It’s not just luck. They use M&A toconstantly refresh and expand their corporate
portfolios, looking at what will produce maximum
value for shareholders. Our studies show thatthose top performers make multiple acquisitions
each year and spend a significant slice of theirinvestment budgets to do so. Most importantly,
it is not solely about acquiring: They are always
looking for opportunities to divest operations
that no longer fit their strategic directions.
With M&A woven into their corporate strategies,
successful acquirers have dedicated organizations
to search for, pinpoint, and pursue targets thatare an excellent fit for their portfolios. They cast
the net wide and search across entire industries,
not just for individual organizations. BCG’sresearch shows that for every successful deal,leading serial acquirers perform approximately
20 outside-in due diligence exercises.

BOSTON CONSULTING GROUPFor them, acquisition is another business activity
to be fostered, streamlined, and continuously
improved upon. It has become an “industrial”
process. That is the case at Danaher. The
conglomerate’s codified Danaher Business
System has been used to generate significant
value from acquisitions for more than 30 years.
BCG’s approach to M&A mirrors such principles.
We know that opportunistic “shopping lists” arehighly unlikely to lead to value-creating deals.
The process must be grounded in a systematic,
strategic approach to identifying and selecting
targets. BCG has applied this approach tohelp many companies, across a wide range
of industries, geographies, and deal types,
to identify and implement transactions that
help them realize maximum value from theiracquisitions. We have developed and regularly
use several digital tools to accelerate andimprove the effectiveness of end-to-end strategic
target searches.
Putting it simply: BCG helps management teams
get acquisition right—and it all starts withdisciplined target search.

01

Tire Maker’s Target Search
Soon Pays Off

Not long ago, Bridgestone EMEA, a major
business unit of global tire giant Bridgestone,
wanted to be able to scan the horizon in searchof targets that could help it future-proof its
product portfolio.

target search to develop a clear mechanism
for evaluating and continually updating lists oftargets. Throughout the initiative, we helped
Bridgestone EMEA to build up its M&A “muscle”
and expand its deal pipeline.

The company was casting the net wide—
everything from industrial conveyor systems
to factory automation. Of particular interest
were technology categories that would help
Bridgestone EMEA diversify away from its legacy
of producing tires and other rubber products
and into markets whose growth potential would
help it resist the headwinds in its core business.

The work involved showing where the company
might have a “right to play” in sectors such as
autonomous driving and materials recycling.
BCG also ran in-depth market assessments(technology trends, patent registrations, etc.)
to validate M&A focus areas, and used multiple
sources (e.g., IP scanning) to create a target
universe as the basis for defining both long andshortlists of targets.

To help accelerate that transformation,
Bridgestone EMEA hired BCG to support a range
of interrelated strategic activities, beginningwith in-depth analyses of future mobility value
pools (e.g., offering storage capacity for fleetsof self-driving vehicles), which could enable newmarket positioning and help the company movequickly to define its strategic plays.
Soon after, BCG’s target search specialists werebrought in to help identify M&A targets acrossBridgestone EMEA’s then-current businessecosystem and to spot opportunities to ridenew business waves, such as self-driving vehicle
systems. BCG drew on its vast experience withWe also tailored and applied an analyticalframework to assess strategic fit and M&A
feasibility for identified targets, conducted predue diligence on the most promising targets, andstructured a range of potential “M&A plays” tosupport strategic discussions and benchmark
various investment options. Further, we set up
an M&A radar mechanism to enable Bridgestone
EMEA to spot changes in its competitive
landscape and provided the company with arich target repository (more than 2,500 detailed
entries across the targeted mobility play) plus aframework for evaluating each target’s strategic
attractiveness.

02 							SUCCESSFUL TARGET SEARCH

Armed with its repository of targets and clear
evaluation processes, Bridgestone EMEA could
now see real opportunities to become a major
player in mobility solutions for fleet services. BCG
specialists were retained to carry out in-depth
due diligence on specific acquisition candidates.
The company now had what it needed to quickly
validate a target it knew could be a perfect fit:
TomTom Telematics, Europe’s top provider ofdigital fleet solutions.

The
purchase
substantiallystrengthens
Bridgestone’s digital capabilities, gives it aprime position in a sector growing at double-digit
annual rates, and propels the company toward
its goal of being a diversified mobility solutions
provider.

Early in 2019, Bridgestone EMEA closed on its
successful $1 billion acquisition of TomTom
Telematics. Demonstrating our strengths insupporting strategic M&A from end to end,
BCG was tasked with supporting the postmerger integration, identifying deal synergies,
and supporting the newly acquired operation’s
growth strategy.

BOSTON CONSULTING GROUP

03

BCG Has Sharpened Many
Target Searches.
Imagine What We Could
Do for You
The truth is, many corporations still treat divestitures as anafterthought. When they decide to sell businesses, they focus
on doing a deal, any deal, rather than finding the deal thatmaximizes shareholder value. But it doesn’t have to be thatway. BCG can help.

BCG has a long history of helping companies
create value through acquisition. In the past
two years alone, we have worked on more than
1,200 buy-side M&A projects around the world.
Every year, we conduct more than 100 target
screening projects.
We know from experience that success in M&A
depends on a successful search to identify thesegments that are most attractive and makestrategic sense for the potential buyer, and on
a rigorous assessment of the top targets withineach of those priority segments.
We also know that many companies havedifficulty in doing this alone. Very few businesses
fit the description of “serial acquirer”; most canbenefit from outside expertise to effectively
scan and evaluate acquisition targets in waysthat align with their corporate strategies.
BCG has industrialized target search in waysthat significantly improve effectiveness andminimize the time needed. Our approach canalways be adapted easily to accommodate
client and industry specifics. Our target searchcapabilities provide in-depth knowledge of
relevant industries, markets, and operations.
We apply the following principles to our search:• Fact-based view: We operate on hard data,
not hunches, drawing on multiple data
sources and input from leading industry
and market experts• Exhaustive search: We leave no stone
unturned in the search for potential targets,leveraging multiple data sources andfrequent iterations on output• New insights: We build on existingknowledge and perspectives of M&A
strategy while also challenging conventional
thinking with fresh insights• Hand in glove with the client: We
take a highly collaborative approach,ensuring continuous involvement of client
stakeholders to secure ownership of thetarget list
• Fast pace: A typical target search can becompleted in six to ten weeks; if digital
tools and techniques are used, search times
can be halved04 									SUCCESSFUL TARGET SEARCH

Our approach involves three phases:

1

2

3

Map Out Attractive
Industry Segments

Identify SpecificCompany Targets

Prioritize
Next Moves

We help clients review theirstrategic M&A rationales,
identify industry sectors
where value-adding targets
can be found, highlight themost attractive opportunity
segments, and create a longlistof potential acquisition targets
within those segments.

• Create list of attractive
industry areas• Prioritize the most attractive
segments• Assess segments for fit withcorporate strategy• Clarify M&A guardrails anddefine scope of search

We assist with detailed
outside-in analysis of thelonglisted targets, gauging their
fit and attractiveness, assessing
their financial performance, andproducing shortlists of targets
that are immediately available
and those that should be kept
on the radar.

• Generate longlist of
potential targets

With attractive targets
shortlisted, BCG guides clients
through a careful, unrushedapproach that is fully alignedwith corporate strategy,
factoring in the best timing fora deal, whether the deal should
be a “big bang” or a “string of
pearls,” what might affect thedeal, and more.

• Link action list back tooverall corporate strategy• Define analytical framework• Define possible moves forfor target assessment andfiltering• Be clear about the timing of• Assess strategic fit andfeasibility of the deal

• Consider financial
performance• Define action list and radar

acquiring targets
a deal as real-world issues
crop up• Keep monitoring for news
updates, deal triggers, andother changes

list and boost the deal
pipeline• Get a head start on due
diligence

These phases typically occur in that order, but they can also be broken out as separate projects. For example, a company
that has already identified opportunity segments can skip Phase 1.
Let’s review each phase in detail.

BOSTON CONSULTING GROUP

05

STEP

1
Map Out Attractive
Industry Segments

Mostcompanies
still
approach
M&A
opportunistically, usually when an attractive
target becomes available, or a surge in available
cash encourages a spend mentality.
But opportunistic acquisitions are not the way tocreate value. There are no shortcuts to finding
targets. BCG’s comprehensive approach helps
make sense of “where to play” in the first place.
Instead of going straight to reviews of alluring
candidates—the typical jumping-off point—BCG
starts with a detailed exploration of the industry
environment in which the acquirer operates andthe suppliers, customers, and partners withwhich it interacts. Then comes an exhaustive
analysis of potential opportunity segments—
the sectors where there might be attractive
companies to buy.

CREATE A LIST OF ATTRACTIVE INDUSTRY
AREAS
The first step is to identify attractive industry
verticals. That involves exploring all cornersof the acquisition universe, looking at sectors
where targets could support the core business aswell as “new frontiers,” areas where previously
unknown targets might open up brand-new
growth vistas for the acquirer. This involves
using a variety of tools and techniques to probethat universe, from conventional bottom-up
material-form classifications and top-down
company classifications, such as Standard
Industrial Classification (SIC) codes, to deepdive research into customer dynamics andeconomic macrotrends. BCG uses an array ofdigital tools proved to dramatically speed up
target search. We leverage in-depth industry
analyses (including megatrend and deal analysis)
and carry out AI-based clustering for attractive
intellectual property. We can also enhance thestandard search approaches by using big-data
text analysis to scan for early signs of attractive
verticals.

06 									SUCCESSFUL TARGET SEARCHPRIORITIZE THE MOST ATTRACTIVESEGMENTS
Next is validating the target industry’s standalone attractiveness to ensure it is a strategic
fit. Acquisitions in that field have the potential tocreate real shareholder value for an acquirer; it’s
possible to glimpse some synergies and to see
how the buyer could be a target’s “best owner.”
Key to this step is a frank review of industry trends,
looking not just at the current influencing factors
but also at what will reshape the industry in the
future. For example, in the telecommunications
sector, the analysis might chart the spread ofvideoconferencing in the wake of the COVID-19
pandemic and look ahead to the emergence of
6G networks.

For each search direction, the longlist may
go through additional filters—for example,
customer fit (would the targets align with theclient’s existing customer base or be more viable
as stand-alones?) and capability fit (is there
synergy with the client’s existing capabilities?).
Depending on the client’s situation—every search
direction is custom-tailored—the BCG team
may use a matrix that looks at two dimensions:the strategic fit with the acquirer in terms oftechnological suitability, customer perspective,
and business model attractiveness; and how
attractive the segment is regarding margin
potential, growth, and competitive intensity. The
matrix highlights opportunity segments (thosescoring high on each dimension).

Map the Most Attractive Opportunity Segments
Illustrative – to be adapted to Industry and Acquirer Context
Prioritized opportunity segments• Technologicalsynergies andprocess steps• Customer
perspective

Segment 7

Segment 3

Segment 6

Segment 9

LOW• Business models

Segment 8

Segment 4

MEDIUM

Assessment of:Strategic fit with acquirer

HIGH

Segment 2

Segment 1
Segment 5
LOW

MEDIUM

HIGH

Easy

Segment attractiveness
Assessment of:• Growth potential

Bubble size = Segment revenue• Margin potential• Competitive intensity

Source: BCG analysis

For example, a high-end automotive manufacturer reviewing its acquisition options might determinethat industry subsets such as engine components and power electronics offer opportunities to create
value. BCG’s rigorous analytical approach to opportunity segmentation might reveal that productionof lightweight pistons—components of internal combustion engines—or new types of power cables
for electric cars could be the narrow industry segments that offer the highest additional value.

BOSTON CONSULTING GROUP

07

ASSESS SEGMENTS FOR FIT WITH CORPORATE STRATEGY
The purpose here is to challenge the acquirer todevelop a defensible rationale for the acquisition.
The company must be able to demonstrate thelogic of how the deal will create additional value.
The acquisition may help grow the buyer’s corebusiness, for instance, or make it easier to enterattractive new markets. BCG’s approach probes
for how well the industry segments match thestrategic objectives expressed in various M&A
archetypes. Would it be a roll-up move, intended
to buy other companies in the same industry tobuild competitive advantage through scale andscope? A bid to buy up direct competitors toconsolidate and reduce costs because there isexcess capacity in the market? Or—continuingwith the automotive industry example—achance to “feed the machine,” snapping up
small, early-stage companies that could offer anedge in high-performance internal-combustion
engine design?

The prerequisite for this step is to identify
growth objectives by analyzing the acquirer’s
portfolio. Does the acquirer want to expand
in Latin America? Is there a gap in its productportfolio that an acquisition could fill? Whatadjacent markets could be a good fit for its
current portfolio of products and services?
A detailed analysis will help answer suchquestions.
The analysis will also elevate important buyor-build decisions. For example, if the exercise
exposes gaps in the product lineup, the company
may decide to develop its own complementary
products rather than try to acquire them eventhough it may take longer to do so.

Different M&A Archetypes Apply to Different Strategic Objectives

Acquisition intent

Support and growexisting business

Extend business byadding to the portfolio

Change business

Strategic archetype

Value-creation objective

1

Roll-upAcquire direct competitors to build competitive
advantage through scale and scope

2

Consolidate

Acquire direct competitors in an overcapacity
market to consolidate and reduce costs

3

Leverage operational
excellence

Acquire companies in same or close industries todeploy superior operational capabilities

4“Feed the machine”

Acquire small, early-stage companies to fill an
R&D pipeline into an advantaged distribution
network

5

Accelerate accessAcquire strong companies in same industry
to access attractive geographies or customer
segments where acquirer currently has no position

6

Enter adjacency

Acquire companies with adjacent products orcapabilities to diversify portfolio in related markets

7

Create new leg

Acquire unrelated companies to diversify into newhigher-margin or growth industry

8

Change existing leg

Acquire unrelated companies to migrate portfolio
by exiting one market to enter one with better
growth potential

Source: BCG analysis

08 									SUCCESSFUL TARGET SEARCH

CLARIFY M&A GUARDRAILS AND DEFINESCOPE OF SEARCH
The final Phase 1 step describes what is outof scope on any prospective deal, providing acandid appraisal of how ready the organization
is to embark on an acquisition journey. Are
shareholders or other stakeholders especiallysensitive to the company buying into, say, themilitary equipment or the tobacco industry?
Let’s say the acquirer is a pharmaceuticalcompany: Should it pursue blockbuster drugs
only? Generics? Realistically, is this potential
target too big for the acquirer to buy andintegrate with? Is the deal likely to be too

BOSTON CONSULTING GROUP

complex—requiring a carve-out, perhaps?
How fast can the acquirer move? And the mosttypical scoping factor: What’s the “ticket size”
the acquirer can do? One billion dollars or $200
million? What sources of funding are there,
and how readily available are they? Would theacquirer be willing to raise additional externalfinancing to enable the deal?
All of those factors and others must be
addressed, carefully thought through, and thenset up as guardrails to ensure the success of thesubsequent deal.

09

STEP

2
Identify SpecificCompany Targets

CREATE A LONGLIST OF POTENTIALTARGETSWith attractive industry segments identified,
the search begins for discrete targets withinthose segments. Traditionally, this has involved
launching a series of search requests on a wide
range of sources (publicly available databases,
news reports, analysts’ reports, interviews withexperts, and so on). The outcomes can be very
comprehensive—as extensive as the efforts andinvestments the acquirer puts into them.
However, for many potential acquirers, traditionaltarget search processes are somewhat ad hoc
and still largely manual, which means they areslow and labor-intensive, tying up resourcesthat could be better utilized elsewhere. Equallyimportant: They don’t shine light into all possible
corners of the acquisition universe.

To help illuminate and create a comprehensive
longlist of possible targets, BCG uses a mix ofadvanced digital tools and analytical talent.
Multiple search engines simultaneously
examine unstructured big-data sources,
structured databases, and reports. In lessthan ten days, they uncover potential targets
that typically elude acquirers' searches. The
automated tools are managed by our knowledge
specialists, who are also investigating anddigging into sources that would typically notcome up in digital searches, such as exhibitor
lists at trade shows.
The longlist work generally spans five sub-steps,
with the third and fourth optional.

BCG Digital Target Search filters a broad target list in five sub-steps

1
PHASE

Raw Data
Collection# OF
TARGETSUp to 10,000

2

Data
Cleaning~ 3,000–5,000

3

Text
Analysis~ 1,500–3,00010 									

4Innovation
Mapping~ 500–1,500

5AI
Algorithm~ 50–500

SUCCESSFUL TARGET SEARCH

1

Raw Data
Collection

2

Data
Cleaning

The first sub-step is raw data collection. BCG
ensures the potential acquirer is making fulluse of the latest, most capable versions ofwidely available databases from providers
such as Thomson Reuters, S&P Capital IQ,
and LexisNexis, along with the industryspecific tools used regularly in the sector inquestion. Simultaneously, we tap into a wealthof proprietary information not readily available
to most acquirers. We draw out pertinent market
knowledge from BCG’s databases and from ourglobal network of industry and business-function
experts.

Next, we whittle down the universe to target a
few hundred prospects. (Our proprietary tool
can be used for this.) The tool rapidly removes
duplicate entries and obvious subsidiaries,
merging them into one row. It also addresses
different spellings of the same company nameas well as flawed entries in which, for example,
revenue is obviously too high. And it can easily
be customized to filter for variables such as
geography or ownership type.

3

4

Text
Analysis

Then comes text analysis, one of the two optional
sub-steps since it digs so deeply into the activities
of prospective targets. Using Quid, an AI
platform that extracts contextual meaning fromany form of written content, BCG can quickly
discover additional, previously unseen targets
and subcategories of targets. Quid reads any
text found online to identify key company words,
phrases, people, and products by focus area. The
third-party tool then compares words from eachcompany to create links between them basedon similar language, and repeats the process at
scale, producing a network to show how similar
companies are to one another.

5

Innovation
Mapping

For acquirers looking specifically for technology
expansion, innovation mapping—scrutinizing
capabilities and intellectual property—comesnext (the other optional sub-step). BCG has
exclusive license rights to tools such as Thomson
Reuters’ Innovations engine, which tracks
companies across the innovation landscapeand highlights key patent holders by researcharea. Continuing with the automotive industry
example from Phase 1, our analysis mighthome in on manufacturing newcomers whose
3D-printing equipment and expertise canproduce pistons that are substantially lighter
than those made using conventional casting andmachining methods.

AI
Algorithm

In the final sub-step, we could reapply BCG’sproprietary Digital Target Search software tofurther narrow down the list to a manageable
number. It acts as an initial pre-filter; we “train”
the software’s AI algorithm using a narrow test
sample from the thousand or so targets still inthe mix and then assign relevance ratings toabout half of that sample. The algorithm thengoes to work on the remainder. Our knowledge
specialists act as the second pre-filter, constantly
fine-tuning to arrive quickly at the longlist of afew dozen targets.

BOSTON CONSULTING GROUP

11

Training AI with Initial Sample

12 									SUCCESSFUL TARGET SEARCHDEFINE AN ANALYTICAL FRAMEWORK FOR TARGET ASSESSMENT AND
FILTERING
Now it’s time to start paring down the longlist.
Again, this doesn’t happen overnight; it is acomplex process that requires discipline.
This step is about defining the analyticalframework for assessment—the scoring“recipe,” in effect. At this point in a typicaltarget search, many acquirers emphasize thefinancial performance of targets. They tend tobelieve that only strong performers are goodacquisition targets. But that isn’t necessarily
so. Yes, financial performance will be reflectedin the acquisition price. However, the longterm success of the deal will hinge not on past
performance or stand-alone attractiveness buton the ability to realize synergies and create
value in the future. A distressed company may
blossom through a focused restructuring effort
by its acquirer and hence be a very attractive
acquisition target.
The key is to properly assess two dimensions:the strategic fit between potential candidate
and acquirer, and the feasibility of a deal. Only
after assessment can the acquirer identify thetargets it should pursue.

ASSESS THE STRATEGIC FITThis step puts the analytical framework into
action. To do so, BCG uses a more granularversion of the guardrails step described inPhase 1. After applying binary knockouts—
detailed yes/no criteria such as company sizeand geography that will immediately eliminate
some targets—we then score each company
on its attractiveness. How well does it fit withthe acquirer? How complementary are its
operations? Does the target merit four stars for
its geographic footprint? Five stars for bringing
in new customers? Three stars for having manyof the same suppliers? BCG’s processes enableacquirers to gauge the significance of the costor revenue synergies that a particular purchasemight generate. We use expert interviews anddraw on our deep industry knowledge to gather
the data needed to inform those assessments.
ASSESS THE FEASIBILITY OF THE DEAL
Acquirers will probably waste time and money
if they pursue a company that is not for sale.
Conventional approaches to target search
usually do not show whether or not a target
is available. To test for deal feasibility, BCG
examines both ownership structure andmarket intelligence on the likelihood of a sale.

• Identify trigger events• Ensure regular updates• Qualify feasibility; review
options such as joint venture• Seek expert calibration• Meet target light-touch• Qualify feasibility; review
options such as joint venture

Need to monitor

Need to clarify• Plan target approach• Engage in (pre)-due
diligence Socialize casewith client
Need to take action

HIGH

Target attractivenessSignificant
enhancement

MEDIUM

Opportunistic
add-on

LOW

Limited fit

LOW

Actively monitor

NEUTRAL

Action required

Deal feasibility
BOSTON CONSULTING GROUP

HIGHWindow of opportunity

Source: BCG

13

History shows that companies with long-term
shareholders such as families or trusts are lessinclined to pursue active M&A opportunities,
whereas those owned by financial investors withshorter investment horizons, such as hedge funds
or private equity firms, are far more receptive tothe idea.
BCG’s market intelligence mechanisms—its
extensive industry and functional networks aswell as its databases and other resources—
mean we are among the first to know whether acompany is considering M&A. Our mechanisms
quickly get answers to key questions such as: Has
the company been put on the block by its parent?
Has there been a recent change in ownershipthat might favor a transaction?
CONSIDER THE FINANCIALPERFORMANCEBCG also considers the financial performanceof an asset. As explained above, financial
performance should not be used as a knockout criterion with which to prioritize targets.
The financial performance will likely dictate
the premium and affect the acquisition priceand might also indicate deal complexity, but it
does not help distinguish between attractive andunattractive targets.

DEFINE AN ACTION LIST AND A RADAR
LIST
Now that the acquirer has determined its top
targets by attractiveness, it can summarize theresults of this phase in a prioritization matrix.
Companies on the longlist that are not a goodenough strategic fit are no longer given highpriority, regardless of their availability (further
reinforcing the shift away from opportunism).
Those still on the list and found to be a strong
strategic fit are split into two categories:
1. Action list: Companies with a strong strategic
fit and high deal feasibility. In our experience,these companies are typically open to exploringa sale, and there is an immediate window ofopportunity. For each one, the teams should
start compiling a dossier that assesses thetarget’s revenue and cost upsides. BCG hasabundant experience carrying out thoroughvalue assessments that can be added to thedossier. The information collected will help
teams pressure-test each target’s potential
for adding shareholder value. With a detailed
dossier in place, BCG can then work with theacquirer to present its management team with asolid argument for acquiring the target.

14 									SUCCESSFUL TARGET SEARCH

2. Radar list: Companies with a strong strategic
fit but low deal feasibility. Because the target
search should not be a one-time effort, BCG
establishes an ongoing monitoring process thatwill alert the acquirer to anything that mightlead to a change in availability of the companies
on this list. Monitoring methods can include
triggers that send alerts when there are changes
or signs of changes in ownership. They can also
extend to regular patent screening to pinpointinteresting new players in key industry sectors.

BOOST THE DEAL PIPELINE
A proper target search process also arms theacquirer with a detailed repository of potential
targets—essentially a deal pipeline thatcan sustain a yearslong M&A initiative. The
repository helps clarify whether or not a target
is of interest, making it easier to respond to theinvestment banks that regularly receive andforward information on new potential targets.
GET A HEAD START ON DUE DILIGENCE
Now is a good time to invest in so-calledmicro due diligence DDs activities to kickstart the actual deal process with a handful ofthe most attractive targets. These exercises
are not as comprehensive as the formal due
diligence stage to come, but they are useful for
accelerating it. Micro DDs require desk research
to understand a target’s financials, productoffering, and value proposition. They may also
call for interviews with experts familiar with thetarget, its competitors, and the industry. Micro
DDs are tailored to each client’s needs; they
may involve two hours’ work by one analyst or if,
say, the client’s management team is preparing
a major presentation for the board, the exercise
might require a week of work by a team of five
analysts.

BCG ADDS VALUE IN THESE WAYS:
Detailed analytics: Target search requires discipline and sometimes can feel like finding a needle in a haystack.
BCG takes a stage-gate approach and has a proven methodology to find the most attractive candidates.
Proprietary frameworks: We have developed proprietary frameworks and tools to support your target search.
Our tested deal feasibility framework helps you understand, in a systematic way, which companies are available.
The assessment of strategic fit is also based on a proven approach and helps us identify companies with highsynergy potential early in the process.
Creation of a comprehensive target search repository: In a target search project, you receive not only ashortlist with potential acquisition candidates but also a comprehensive target search repository. The repository
contains key information (financials, strategy, etc.) on a large set of companies and is a central aspect for all futuretarget search and M&A efforts.

BOSTON CONSULTING GROUP

15

STEP

3
Prioritize NextMoves

The approaches described so far help acquirers
shortlist the most attractive companies anddivide them into two categories. Now it’stime to prioritize the next moves. This is notabout rushing to make an offer on one of theshortlisted companies; it means taking a careful,considered approach that is fully aligned withcorporate strategy.
This phase is different from the preceding two in
its depth and specificity. If Phases 1 and 2 were
the rough cuts, Phase 3 is the fine cut, putting
all possible next moves in very practical terms:
Is the timing right? Are we still comfortable withthe logic of our initial search? Are we still readyto do a big-bang deal rather than a string-ofpearls series?

This is the crucial phase before due diligence.
It is the last point at which the client’s M&A
specialists should request the company’s
strategy experts and business unit leads todouble-check all assumptions to date and to
uncover any potential obstacles not yet identified
by those closely involved with the M&A activities.
BCG can help with much of that outreach andcollaboration; our teams are highly experienced
with everything from defining business priorities
to resolving conflicts.

16 									SUCCESSFUL TARGET SEARCH

Four steps are necessary, and they are especially
important for those companies for which M&A is
not yet a routine practice:1 ) LINK THE ACTION LIST BACK TO OVERALL CORPORATE STRATEGYThis step involves reviewing the targets on
the action list in light of the acquirer’s various
strategic objectives for creating value. A radar
chart is one way to do this, showing at a glance
which objectives a target meets fully, partially,or not at all. It enables the acquirer to quickly
assess the trade-offs that will inevitably have to
be made since it is highly unlikely that any one
target can meet all of the necessary objectives.
The target’s characteristics will affect its“signature” on the radar chart—for instance,
whether its operations are centralized or
decentralized, or are geographically dispersedor concentrated in one hub; whether it is a new
player or a long-time competitor; whether it is in
the same industry or a different one; or whether
or not it is asset-heavy.

2 ) DEFINE THE POSSIBLE MOVES FORACQUIRING TARGETS
There are different ways to achieve the same
overall strategic objectives, each with its own
pluses and minuses. A big-bang acquisition—
typically a single large buy—will fulfill most of
the acquirer’s strategic M&A goals in one go.
However, it will be high risk by virtue of its large
deal value and because the target’s availability
may not be assured. Also, the integration phasewill be complex, extensive, and costly.
String-of-pearls deals, or serial acquisitions ofsmaller targets, will allow for easier timing ofintegration, and smaller individual deal sizes willfurther lower the risks of this M&A move. Bothtuck-in and bolt-on setups are feasible. There
are several drawbacks to the serial approach,however. Thorough preplanning steps are
required; the availability of all targets cannot be
guaranteed; and the final implementation of the
M&A strategy is fragmented.
Another route is to buy as the market opens
up opportunities. As with the serial approach,smaller deal values and less complex postmerger integrations (PMIs) lower the overallrisks. But the opportunistic route shares thechallenges of a fragmented final acquisition
state and uncertainties over target availability.
And it isn’t easy to stay true to the M&A strategy.

Verify Varying Strategic Value Creation Objectives

Build competitive advantage
through scale and scope

Switch existing
business

Consolidate
and reduce
costsEnter new growthmarkets

Fill R&D
pipeline

Acceleratemarket access
BOSTON CONSULTING GROUP

Deploy superior
operational capabilities

Diversify portfoliowith adjacencies
173 ) BE CLEAR ABOUT TIMING AS REAL-WORLD ISSUES CROP UP
This step brings timing into the picture in lightof internal and external factors that often cannot
be anticipated. It is not atypical for an acquirer tohave multiple potential deals in play at the sametime, so it is important to line them up in termsof which is available and when. For example,
one target might be available immediately, butanother, equally attractive, might have beentaken off the market or suddenly become muchless attractive because of the loss of a crucialsenior executive or a huge supply-chain upset
caused by a natural disaster. A timeline is also
important to help companies less experienced
with M&A to see how they can start small andgradually build up experience.

Prioritize Alternatives for Timing and External/Internal Factors
Target 3
Crisis devaluated target
Target 1

Limited internal
capacities delayacquisitions

Developacquisition
roadmap!

!

Low PMIeffectiveness

Least complex andsmall acquisition firstto generate learnings
and build expertise

Delay ofacquisition
due toantitrustissues!

Internal factors
External factors
M&A strategy$

Increased liquidity!

FrictionTarget 218 									SUCCESSFUL TARGET SEARCH

Target 5$
Alternative
financing options
generate new cash
• Serialacquisition
portfolio filled

Competitor
raisesinterest in
Target 5• Significant
in-house PMI
expertiseGretaeffect!

!
Sell assets
andreinvest

Limited capitaldoes notallow for M&A
expenditures!

$

Once-ina-lifetime
acquisition
after sufficienttesting boosts
scale

Target 4

BOSTON CONSULTING GROUP

194 ) KEEP MONITORING FOR NEWS UPDATES, DEAL TRIGGERS, AND OTHER
CHANGESOf course, everything is in constant flux in themarket, at the targets, and in the economy as awhole. Therefore, it is crucial to keep a watch on
changes on all fronts. The target repository must
be constantly updated with new informationon the targets’ markets, their financial data,
their ownership structure, and much more—
all of which requires an ongoing data-gathering

regime.
Specific trigger events may come up: unexpectedchanges in top management at either the acquireror target, removal of government subsidies, oran environmental catastrophe, for instance. At
the same time, new targets may appear on theradar. Again, it is necessary to monitor all suchpotential circumstances, with a coordinatedapproach to tracking publicly available news andclear accountability for monitoring and reporting.

BCG ADDS VALUE IN THESE WAYS:
We help the acquirer’s M&A team double-check all assumptions to date and to uncover any hurdles not yet
identified by those closely involved with the M&A activities.
We advise on the best moves—for example, whether the acquirer would benefit most from successive smaller
string-of-pearls deals or a single big-bang acquisition.
We compare alternative M&A candidates to understand which of the acquirer’s strategic objectives a candidate
meets fully, partially, or not at all.
We help with timing. An acquirer may have multiple potential deals in play simultaneously, so it is important toline them up in terms of which is available and when.
In the final stages, we monitor changes. Everything is in flux in the market, at the targets, and in the economy asa whole.

20 									SUCCESSFUL TARGET SEARCH

Questions the
CEO Must Ask
When the key target search themes have been communicated to the executive team and the board of directors, the CEO is in a position to lead active discussions
on the topic. Here is a checklist of key questions that
the CEO might ask at the next executive management
meeting:• When we look for acquisition targets, are
we doing more than just reviewing ourdirect competitors in our industry?
• How clearly can we articulate the value
logic of a possible acquisition in an
adjacent industry sector, or up or down
our industry’s value chain? How does that
logic inform the acquisition moves wemake?
• What’s the analytical basis for our longlist
filtering process? How transparent is it?
Can we be sure that it’s solid enough touse as a reference for potential future
opportunities?
• How do we know whether the most
attractive candidates on our list are reallyup for sale or soon might be? What’s ourmechanism for knowing this?

• Do we have the in-house M&A capabilities
and processes needed to drive a propertarget search process? If so, can we deploy
those capabilities and processes without
getting lost in governance issues andwithout compromising our value-creation
agenda?
• Have we named the dedicated team ofinternal experts, and external advisors
where needed, who can react quickly
when an opportunity arises?
• Do we know more about potential targets
than our competitors do? Are we finding
and using all possible nonpublic sources
to do that and to reduce our margin oferror in gauging the value of potential
targets?

• What’s our process for monitoring themost attractive candidates? How can webe sure the process is robust enough that
we don’t miss great opportunities?

BOSTON CONSULTING GROUP

21

Move Forward withDue Diligence
Ideally, after working through the phases described sofar, an attractive target will be in view and the acquirer
will be the only viable buyer on the horizon—a situation much more in its favor than any auction process
will be. At this point, due diligence can begin.

A core purpose of due diligence is to pinpoint andprioritize key issues unique to each target andto identify relevant markets in all dimensions. It
also highlights each target’s potential for value
creation, including identification of key drivers
and sensitivities. The activity typically has fourphases: getting a close-up of the attractivenessof the target and its market; examining thesynergies of the potential deal; scrutinizing
the target’s business plans; and reviewing thefeasibility of a deal (the investment required,
the realities of retaining the acquired company’s
talent, etc.).

However, because no two due diligence projects
are the same, it is best to underpin the activity
with deep, data-based analysis rather thansimply applying a standard checklist. BCG
adds value throughout that phase, blending
fact-based strategic and industry perspectives
with a willingness to challenge conventional
wisdom. This enables BCG to thoroughly
assess the business case for the acquisition
and, as needed, challenge it. The result is a
professional, realistic, and neutral assessmentof the target and the deal, allowing for a rational,
well-thought-out decision.

22 									SUCCESSFUL TARGET SEARCH

Why BCG Is Your Best
Partner for Target Search

01

02

03

Our approach to target
search is grounded in deep
insights into companies’
strategies and operational
specifics

We know the verticals: We
bring specialized industry experts who know what senior
executives in the respective
industries need because theywork with them every day

We know the geographies: We
bring experts from aroundthe world with deep local
knowledge of the businessdynamics in each market

04

05

06

We use a wide range of cutting-edge digital tools to
speed the search process
and uncover “hidden” targets: BCG puts its powerful proprietary tools to workand deploys third-party tools
to which we have exclusive
accessWe are the leader in M&A
services: BCG is rated thebest M&A partner by an independent authority; we conduct more than 100 target
screening projects every year

We work with you, never atarm’s length: Everything we dofor you is done with you, continuously and collaboratively

BOSTON CONSULTING GROUP

23

Deals That We’ve
Helped Happen
2020
2020

2020/2019

2020

2020

buying 49.99% of Santander
Securities Services from
Strategic advisor
in JV transaction

Strategic advisor to thebuyer and on PMIStrategic advisor
to the buyer

Strategic advisor
to the buyer

Value not disclosed

Value not disclosed

$5.1B

$332M

2020

Strategic advisor
to the buyer

Value not disclosed

24 									SUCCESSFUL TARGET SEARCH

2019
2019

2019

buying 22.5% share ofbuying 5% share ofStrategic advisor to thebuyer and on PMIStrategic advisor
to the buyer

Strategic advisor
to the buyer

Value not disclosed

Value not disclosed

$200M

€910M

2019

2019

Strategic advisor to thebuyer, Strategic advisor to
the buyer and on PMIStrategic advisor to thebuyer and on PMI

$484M

$2.9B

2019

Strategic advisor
to the buyer

BOSTON CONSULTING GROUP

2019

25

2018
2018

2018

2018

2018

buying 72% share ofStrategic advisor toacquirer in JV transaction

combined their mobility
services in an equally
owned joint venture

Strategic advisor
to the buyer

Strategic advisor to thebuyer, Strategic advisor to
the buyer and on PMI$40B

Value not disclosed$51M

Value not disclosed

2017

2017

2017

2017

Strategic advisor
to the buyer

Strategic advisor on PMIStrategic advisor
to the buyer

Strategic advisor
to the buyer

$1.2B

$24B

Value not disclosed

$5.2B

2017

2017

Strategic advisor
to the buyer

Strategic advisor
to the buyer

$160M

$0.9B

2018

buying US candy business ofStrategic advisor
to the buyer

$2.8B

2017

26 									SUCCESSFUL TARGET SEARCHBOSTON CONSULTING GROUP

27

Meet Our Team
BCG’s experts represent a richly diverse group whose experiencecomes from solving the key issues faced by companies aroundthe world. For every focus area, we also have local experts who
provide pivotal insights into the dynamics of individual markets.

Jeff Gell
Managing Director and Senior Partner
Jeff Gell is a Managing Director and Senior Partner based in BCG’s Chicago office. He
is a core member of BCG’s Consumer, Operations and Corporate Finance and Strategy
practices and leads the Transaction and Integration Excellence business globally.

Chris Barrett
Managing Director and Partner
Chris Barrett is a Managing Director and Partner based in BCG’s Dallas office whojoined BCG in 2001. He has worked on Post-Merger Integrations across many industries,
geographies, and topics. Chris has also worked in our Los Angeles and Amsterdam
offices.

Dr. Jens KengelbachManaging Director and Senior Partner
Dr. Jens Kengelbach is a Managing Director and Senior Partner based in BCG’s Munich
office. He is the Global Head of M&A and the Leader of the BCG Transaction Center.

28 									SUCCESSFUL TARGET SEARCH

BCG’s Corporate Development Practice Encompasses:

More than 150 partners and 700
trained professionals across all seniorities, each with significant experience in corporate development
and corporate finance.

Teams that always combine thespecialist’s expertise with ourproven industry expertise, bringing strategic know-how to all industries and geographies.

A “solution first” mindset thatmeans we help to constructively
manage the dealmaking process atthe strategic “macro” level as well
as at the level of detail required.

A collaborative approach from beginning to end, continually working
with the client’s own experts andmanagement teams and with key
stakeholders, such as banks andoutside legal counsel.

Daniel Friedman
Managing Director and Senior Partner
Daniel Friedman is a Managing Director and Senior Partner based in BCG’s Los Angeles
office. He is the Los Angeles Office Leader and the Leader of the Transaction andIntegration Excellence Business in North America.

Jesper Nielsen
Managing Director and Senior Partner
Jesper Nielsen is a Managing Director and Senior Partner based in BCG’s London office.
He is currently the Regional Leader of our Transaction and Integration Excellencebusiness in Western Europe, South America, and Africa

BOSTON CONSULTING GROUP

29

Teemu Ruska
Managing Director and Senior Partner
Teemu Ruska is a Managing Director and Senior Partner based in BCG’s Helsinki office.
He is the Regional Leader of our Transaction and Integration Excellence business inCentral and Northern Europe and Middle East.

Max Strauch
Project Leader
Max Strauch is a Project Leader based in BCG’s Berlin office. He joined BCG in 2013as a Recruiting Director supporting marketing activities in Germany and Austria. He
is a core member of the Corporate Finance and Strategy and Energy practice areas, ofTransaction and Integration Excellence, as well as tha European Corporate Finance Task
Force.

Timo Schmid
Partner and Associate Director
Timo Schmid rejoined BCG in January 2016 after spending four years in the corporate
M&A team of Wesfarmers in Australia. He is focused on M&A and based in the
Melbourne office. Timo is a core member of the Corporate Finance and Principal
Investors and Private Equity practice areas and the BCG Transaction Center.

Philipp Jostarndt
Managing Director and Partner
Philipp Jostarndt is a Managing Director and Partner based in BCG’s Munich office
who joined BCG in 2007. He is a core member of the worldwide Industrial Goods andCorporate Development practices and a core member of the Metals and Mining sector.

30 									SUCCESSFUL TARGET SEARCHAndré KronimusManaging Director and Senior Partner
André Kronimus is a Managing Director and Senior Partner based in BCG’s Frankfurt
office and the global Topic Leader for Corporate Finance and Strategy (especially end-toend M&A and PMI) in Health Care, Life Sciences, and Chemicals. He is a core memberof both the Corporate Finance and Strategy and Health Care practice areas as well as
BCG’s Transaction Center and the European Corporate Finance Task Force.

Decker Walker
Managing Director and Partner
Decker Walker is a Managing Director and Partner based in BCG’s Chicago office. He is acore member of the Industrial Goods and Corporate Finance and Strategy practice areas
with a particular focus on Agribusiness and M&A topics. He is also a core group memberof BCG’s Transaction Center. Prior to joining BCG, he was an economist at the WorldBank in Washington, DC.

BOSTON CONSULTING GROUP

31

Read All About It
Our clients operate in nearly every industry and region aroundthe world, and they come to us for fresh approaches to theissues that matter most to them. Through a rigorous analysis
of each client’s individual situation, we develop customized
solutions that meet the organization’s specific needs. The caseexamples here illustrate how we help clients sharpen theircapabilities, create value, and deliver sustainable advantage.

Transaction and Integration
Excellence Product Series

Sell-Side Success
How BCG Supports Divestitures

Sell-Side Success
How BCG Supports
Divestitures

Successful Business Separations
How BCG Supports Carve-Outs

Successful BusinessSeparations
How BCG Supports
Carve-Outs

Successful Due Diligence
How BCG Supports Strategic Due Diligence

Successful Due Diligence
How BCG Supports Strategic
Due Diligence

The Clean Team Advantage
How BCG Enhances M&A Success

The Clean Team
Advantage
How BCG Enhances
M&A Success

32 									SUCCESSFUL TARGET SEARCH

Successful Merger Integration
How BCG Helps Maximize the Value from a Deal

Successful Merger
Integration
How BCG Helps
Maximize the Valuefrom a Deal

Successful IPOs, Spin-Offs,
and Dual Tracks
How BCG Supports Effective Transactions

Successful IPOs,
Spin-Offs, andDual Tracks
How BCG Supports
Effective Transactions

Successful Merger Clearance
How BCG Helps Clear the Path for Acquisitions

Successful Merger
Clearance
How BCG Helps Clear
the Path for Acquisitions

The 2020 M&A Report
Alternative Deals
Gain Traction

BOSTON CONSULTING GROUP

33

BCG’s Transaction Center is the hub of the firm’s global M&A expertiseand provides businesses with end-to-end transaction support, including
strategic decision-making in mergers and acquisitions, preparing andexecuting divestitures, and supporting IPOs and spinoffs. The Transaction
Center combines BCG’s deep sector expertise with our comprehensive
knowledge of, and experience in, all aspects of M&A across all sectors andindustries. These services complement the process-focused offeringsof investment banks. With more than 300 professionals worldwide, weconcentrate on the commercial drivers of the business plan and equity
story. We help both corporate and private equity clients execute deals
efficiently and, more importantly, maximize value.

Contact:
Dr. Jens Kengelbach
Global Head of M&A
Managing Director and Partner, Munich
Tel. +49 89 2317 4312
kengelbach.jens@bcg.com
https://connect.bcg.com/transactioncenter

34 									SUCCESSFUL TARGET SEARCHBoston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture
their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we help clients withtotal transformation—inspiring complex change, enabling organizations to grow, building competitive advantage, and drivingbottom-line impact. To succeed, organizations must blend digital and human capabilities. Our diverse, global teams bring deepindustry and functional expertise and a range of perspectives to spark change. BCG delivers solutions through leading-edge
management consulting along with technology and design, corporate and digital ventures—and business purpose. We work in auniquely collaborative model across the firm and throughout all levels of the client organization, generating results that allow ourclients to thrive.
© 2021 Boston Consulting Group. All rights reserved. 07/21
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