Make Your Mergers And Acquisitions Evaluation Strategy Count With Solid Market Research

By: Jonathan Kurz

With M&A activity entering a new period faced with higher interest rates and economic uncertainty, growth-minded companies have an opportunity to increase their market advantage while their competitors play it safe. To minimize risk and identify ideal targets, they’ll still need a thorough mergers and acquisitions evaluation strategy that leverages high-quality market research. 

There are a few reasons that M&A activity is declining from its record highs of 2021. In 2021, low interest rates allowed companies to borrow money at advantageous rates, giving them excess capital to invest in M&A. With the 2022 increase in interest rates, companies have fewer funds to invest. In addition, market turbulence and its resulting risk is causing a reduction in the demand for M&A.  

Does this mean that M&A should not be a priority for your company? No. In fact, this decreased activity provides an opportunity for savvy businesses to explore all available options and identify their ideal target company — positionally for a lowered price — without having to compete with others looking to make a quick deal. With less M&A competition, businesses are presented with an additional opportunity to strengthen their competitive advantage by expanding their product and customer portfolio, market coverage, share of wallet, and market share, while their competitors are playing it safe. 

This means more time for one of the most critical parts of any M&A strategy: a solid market and acquisitions evaluation, complete with expert market research. 

Protecting Your Investment with a Data-Backed Mergers and Acquisitions Evaluation  

While the idea of M&A (and its potential for growth) can be exciting and enticing, there are significant risks. In fact, study after study has shown that somewhere between 70 and 90% of mergers and acquisitions (M&A) fail. This is likely a result of insufficient data and an unstructured strategy.  

According to the recent trends report from Deloitte, experts believe the earlier stages of M&A are the most important steps toward accomplishing a successful deal. Almost half of M&A experts from both corporate and private equity firms believe that a solid M&A strategy is critical, and over one in three corporate and private equity investors cite operational, financial, and commercial due diligence as integral to closing a successful deal. All of these were valued higher than pre-close planning and post-close integration.  

To protect their investments and identify the right M&A opportunity, executives will need to craft mergers and acquisitions evaluation strategies that incorporate in-depth market research analyzing not only target companies, but also potential opportunities and market risks going forward.  

Develop a well-defined process for identifying the most promising M&A opportunities with our 5-Step Guide to Successful M&A Target Identification.  

Gather In-depth insights with Market Research

To identify the best opportunity for investment—and to avoid an unsuccessful transaction—companies need access to thorough market research. Your market research activities should identify the most promising markets to grow your business, including the best companies to target for M&A activity. 

Companies that have leveraged market research in their business strategies can attest to its value. In our report — Trends in Market Analysis — we surveyed business leaders to understand how they view market research, including its role in mergers and acquisition evaluation. The majority of business leaders saw a strong return on investment, with over half reporting an ROI of over 400%. In addition to ROI, executives also noted additional benefits such as increased revenue, confidence in decision making, and cost savings.  

Options for Conducting a Mergers and Acquisitions Evaluation

There are a few ways for executives to pursue M&A market research —and the benefits it provides — with the main three being: 

  1. In-house: Some companies establish their own internal market strategy departments. Depending on how often they engage in M&A, they may even have a few dedicated M&A researcherss.
  2. Investment banks: Many investment banks have teams capable of M&A research. They typically specialize in financial investigation and future financial outlook.
  3. Third-party: These market research firms specialize in researching overall market trends and in investigating and scoring potential investments.  

The choice (or combination) of avenues for pursuing market research depends on the frequency of M&A they plan to engage in and the resources they have available. For example, companies that are very large or that have significant plans for frequent M&A  can typically afford the costs of staffing their own internal research functions and of supporting them by outsourcing parts of the research to Investment banks or similar financially focused external support.  

Companies that cannot afford or do not need multiple full-time employees focused on M&A, but that also don’t want to pay to outsource can still gather data, evaluate opportunities and build an M&A pipeline by leveraging support from third-party market research providers. This allows them to keep acquisition costs down, build a pipeline over time, and preserve the flexibility to move quickly on mergers and acquisitions evaluation when necessary and to switch to other growth strategies when appropriate.
 

Benefits of Incorporating Third-Party Market Research into Mergers and Acquisitions Evaluation Process 

Including third-party review in your market research process covers gaps and blind spots that are more likely to occur for organizations that rely solely on investigations from in-house teams and banks. Third-party research allows you to: 

  • Remove the influence of tribal knowledge and personal or company bias.  
  • Conduct anonymous research in order to protect company interests and preserve intent.  
  • Complete a comprehensive, anonymous red-flag assessment, which would be more difficult to collect as a named company. 
  • Offload time-intensive research to focus internal resources on strategic work.  
  • Complete preliminary stages of your research and target identification process at a lower cost and without your partner having a financial stake in a transaction taking place. 

When we asked business executives to share their views on third-party market research vendors, these were the top benefits they reported.  

As your company begins to plan its path for M&A, make sure you are gathering all the data you can to protect your investments with an intensive market research review.  

Get an in-depth data analysis to evaluate target companies objectively to determine the right opportunity for M&A with our M&A Opportunity Analysis solution 
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