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Making the Right Acquisitions

An industrial component supplier sought to take advantage of the market turmoil and acquire a struggling competitor in a related segment. After meeting internally to discuss the attractiveness of the segments and the companies, it became apparent that there were significant gaps in the Client’s understanding of the business.

Specifically, the Client was not sure if the adoption rate of the acquisition candidate’s technology was increasing or decreasing? Were these companies struggling due to economic downturns or was there some other structural problem with the companies and /or market. Given this uncertainty, the Client needed an unbiased, third party evaluation of the market and the potential acquisition candidates.

Overview of RSR Engagement

Project Goals and Objectives

Objective

To provide a fact-based evaluation of the attractiveness of the acquisition candidates and the markets they serve.

RSR Approach

Market Analysis

  1. Quantify the current and future market opportunity using supply-side (bottoms up) and top down techniques.
  2. Identify growth opportunities and barriers to profitable growth that would likely arise from pursuing these market segments.
  3. Benchmark leading competitors currently serving the segments of interest, examining market share, strengths, weaknesses, selling methods, value proposition, etc.

Customer Analysis

  1. Understand customer buying behavior, including supplier selection criteria, preferred suppliers, and potential unmet needs.
  2. Assess the receptiveness of customers to evaluating another supplier, including switching costs, alliances, etc.

Results

Key Study Findings

  1. Found one of the vertical markets was actually three distinct segments with different buying influences, suppliers, and forces of competition.
  2. Discovered product differences in the key segments, which explained the different supplier base.

RSR Recommendations

  1. Recommended the Client pursue one of the vertical markets with a new product offering well suited to that segment.
  2. Recommended the Client avoid many of the market segments due to entrenched competition, low profit margins, and declining growth.

 

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