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Time is the greatest enemy of a searcher. The search phase is critical, and you must be proficient in identifying the right target. Developing a strong screening tool requires a structured approach that balances quantitative metrics (financials, industry trends) with qualitative factors (growth potential, cultural fit, and willingness to sell). This will help you efficiently filter opportunities, ensuring alignment with your criteria before investing time in the wrong target and engaging in deeper due diligence.
Below is a practical framework with suggested criteria that you can adapt and tailor to your specific conditions.
1. Basic information
- Company name / Industry / Location / Year founded / Number of employees
- How it was sourced (proprietary, broker, finder, etc.)
2. Financial performance
- Revenue for the last 3 years (€5-50M), EBITDA (€1-5M), growth rate (5-10-15% CAGR)
- Gross margin (>25-40%), cash flow conversion, debt level, low capex intensity…
3. Industry & market
- Market size and growth rate
- Fragmented market with consolidation potential
- Customer segments / Key suppliers
- Main competitors & barriers to entry
- Regulatory considerations
4. Business model & competitive advantage
- Key products & services
- Recurring revenue, customer stickiness, churn rate, and loyalty
- Value-added services (not purely commoditized products)
- Intellectual property and intangible assets (e.g., brand recognition)
- Supply chain dependence
5. Operational & strategic fit
- Strength of the management team
- Opportunities for digitalization & automation
- Potential for international expansion or scalability, build up…
- Customer concentration (e.g., <10% from one client, top 10 clients <50%)
6. Ownership & transition
- Owner’s readiness to exit / No succession plan (majority ownership vs. multiple owners)
- Seller motivation and reasonable expectations (valuation multiple)
- Deal structure: earn-out, seller note, seller reinvestment, etc.
7. Potential red flags
- Legal or compliance issues, regulation
- Market or technological disruptions
- Threat of substitution
Building a scoring system for objective evaluation
With this data (this is just an example—you should customize it to your specific criteria), you can develop a scorecard with weighted factors (e.g., a 1-5 scale) to objectively compare targets.
We suggest grouping your criteria into categories (financials, competitive advantage, etc.) and assigning a weight (%) to each factor. If a company scores above 80%, for example, it can move to deeper analysis.
This is a work in progress—you should refine your scorecard by adjusting weightings and red flags after analyzing the first 50 companies. Optimizing qualitative filters will improve decision-making.
By applying these criteria early in the evaluation process, you can focus on high-potential opportunities. Customizing this tool to your specific investment preferences ensures an optimal acquisition strategy and maximizes the chances of securing a strong deal.
