Mergers and acquisitions (M&A) are effective strategies for companies seeking to grow quickly, enter new markets, or gain a competitive edge. But success starts with identifying the businesses that align strategically and offer long-term value.
Finding the right M&A targets takes thoughtful planning, market intelligence, and a data-driven approach to uncover the opportunities others miss. In this article, we break down how to identify, evaluate, and value the best potential targets for your next acquisition.
How to Find Potential M&A Targets
Identifying the right acquisition targets starts with a clear strategy and deep understanding of your market. Successful buyers rely on industry expertise, thoughtful planning, and data-driven research to uncover companies that align with their goals.
In M&A, precision matters. The more intentional your targeting, the more likely your deal is to generate meaningful returns. Here are the most important steps in identifying targets that align with your strategy.
Using Dealmaking Platforms
Platforms like Grata are designed to streamline and enhance the entire M&A dealmaking process, from target identification to due diligence to outreach.
Grata’s AI Search tool helps dealmakers discover potential M&A targets in any market. Investors search for companies of interest using specific keywords and refine by filtering for specific criteria, including:
- Industry
- Ownership
- Revenue
- Location
- Employee headcount
- Funding
- Growth
Dealmakers can also use Grata’s Similar Company Search to discover potential targets similar to their most successful portfolio companies or companies of interest.
Grata’s Market Intelligence tool provides investors with full-picture views of their target market, including actual deals that are happening in their space. Dealmakers can use precedent transaction data — which include deal values and valuations — to easily and accurately determine how their deal should be priced.
Source: Grata
Market Intelligence also includes public and private comp data, which investors can use to contextualize and benchmark their target’s performance.
Additionally, fragmentation data provides insights into the scale and dynamics of the opportunity in a given space. For example, a highly fragmented space with many founder-owned companies might be ideal for a roll-up strategy.
Leveraging Your Network
Sometimes the best acquisition targets are surfaced through your network. Trusted advisors, consultants, and other industry professionals often have visibility into companies that may not be publicly exploring a sale, but are open to conversations.
Strong relationships also make it easier to vet targets. Advisors with firsthand experience working with a company can speak to leadership style, culture, and operational strengths. This context goes beyond financials and makes for smarter deal decisions.
Investment bankers, M&A attorneys, accountants, and even former colleagues can offer valuable introductions or inside perspectives on potential targets. These relationships often lead to proprietary or limited-process deals, ones with less competition and more favorable terms.
For example, a corporate development executive at a software company might learn about a smaller competitor considering strategic options through a shared board member or consultant. Acting on that intel quickly can mean being first to the table and closing a deal before others even know it’s in play.
Dealmaking platforms can help enhance your networking efforts. For example, Grata’s Conferences and Events tool allows investors to search for events relevant to their industry. They can also use Grata’s searchable attendee lists to see who else has registered for an event so that they can make the most of their meeting time.
Source: Grata
Additionally, the Grata Deal Network enables buyers to connect directly with sell-side advisors about live deals — many of which aren’t even on the market yet.
Staying Up-to-Date on Industry Trends and News
Monitoring industry news and insights in real time is another key way to uncover potential acquisition opportunities. Trade publications, analyst reports, newsletters, and press releases often spotlight companies gaining traction, announcing partnerships, or expanding into new markets — all signals that a company could be ripe for acquisition.
For example, reading sector-specific journals might surface a logistics company that just secured a large contract with a national retailer. While the deal itself may not signal a sale, it could reflect momentum that makes the business a valuable strategic target. Similarly, a market report might highlight a niche segment within industrial automation that’s growing faster than the broader category, a signal to explore the space more closely.
Buyers who consistently scan these sources are more likely to spot signals early and engage with target companies before others do. Using tools like Google Alerts, subscribing to industry roundups, and following analyst commentary helps stay ahead of the curve. It's also smart to keep tabs on funding news and smaller M&A deals. Both are clues that capital and consolidation are flowing into a sector, and more opportunities are likely to follow.
Evaluating M&A Targets
Financial Screening
Once a company passes the initial strategic and market filters, the next step is evaluating its financial health. Buyers look at key metrics like revenue growth, EBITDA margins, gross margin, and cash flow to assess a target’s stability and potential for scale.
Revenue growth shows momentum and market demand. A company with steady or accelerating topline growth may indicate strong product-market fit, customer retention, or expansion into new verticals. Meanwhile, profitability, often measured by EBITDA or operating margins, helps determine if the business can generate sustainable returns and how much investment is required post-acquisition.
For example, a private equity firm might screen for companies with $10M–$50M in annual revenue and at least 15% EBITDA margins as a baseline for platform investments. They might also analyze margin trends over time to flag operational red flags or highlight untapped efficiency gains.
Financial screening is also about consistency. Spiky growth, one-time revenue boosts, or negative cash flow trends often raise questions about business model durability. On the flip side, companies with moderate but consistent growth and clean books can often be better long-term bets.
Other Factors to Consider
Not every target that looks promising on paper is the right fit. To make informed decisions, buyers need to evaluate a range of strategic, financial, and operational factors.
- Strategic fit: The company should align with your business goals, whether you're expanding into a new vertical, entering a new region, or reinforcing your core competencies. Strategic alignment lays the groundwork for future value.
- Market position: Understand where the company stands in its market. Consider its competitive advantages, customer relationships, and reputation. A strong market position can boost your own credibility and reach.
- Operational synergies: Look for overlaps that could create efficiency, from shared suppliers to similar technology stacks. Synergies help reduce costs and accelerate integration.
- Cultural compatibility: Culture clashes can derail even the most logical acquisitions. Assess leadership, decision-making style, and workplace values to gauge compatibility.
- Regulatory and legal factors: Identify any regulatory hurdles, pending litigation, or compliance risks. These issues can stall or even kill a deal if not addressed early.
Evaluating these factors with discipline and consistency is critical to identifying the right opportunities and setting the deal up for long-term success.
Deal Valuation
Valuation is a critical step in the M&A process. It helps buyers determine what a company is worth and whether a deal makes financial and strategic sense. No single method provides a complete picture, which is why using multiple approaches is best practice.
- Discounted cash flow (DCF) analysis: This method projects the target’s future cash flows and discounts them back to present value using a required rate of return. It’s particularly useful for companies with predictable earnings.
- Comparable company analysis: This approach benchmarks the target against similar public companies using valuation multiples like EV/EBITDA or EV/Revenue. It provides market context and helps assess relative value.
- Precedent transaction analysis: This method looks at prices paid in recent, comparable M&A deals. It’s helpful for understanding how the market values similar companies in similar circumstances.
- Asset-based valuation: This focuses on the company’s balance sheet — both tangible assets like property and equipment, and intangible ones like patents or brand value. It’s especially relevant for asset-heavy businesses or distressed targets.
- Synergy valuation: This approach estimates the added value that can be created post-acquisition through cost savings, increased revenue, or operational improvements.
Each method has its strengths and limitations. Combining them leads to a more accurate and nuanced view of what a company is truly worth.
Types of Potential Acquisition Targets
Not all acquisition targets serve the same purpose. Depending on your strategic objectives, different types of companies can offer different kinds of value. Understanding the categories of potential targets helps shape a more focused and effective acquisition strategy.
Competitors
Acquiring a competitor is one of the most direct ways to grow market share and eliminate redundancy in the industry. These deals allow buyers to consolidate customer bases, streamline operations, and reduce overlapping costs.
By purchasing a rival, companies can also gain immediate access to established relationships, contracts, and brand equity. In highly competitive markets, this type of acquisition can neutralize threats and strengthen pricing power.
Additionally, it can provide geographic or segment expansion by absorbing a competitor’s existing presence in regions or niches where the buyer is less active.
For example, a regional HVAC provider might acquire a competing firm that dominates an adjacent state. The deal would not only expand the buyer’s footprint but also allow for cost savings across distribution, marketing, and field operations.
Complementary Businesses
Acquiring a complementary business allows a company to enhance its value proposition without duplicating its existing offerings. These targets often provide products, services, or capabilities that pair well with what the buyer already delivers.
This type of acquisition can unlock new cross-selling opportunities, where each company’s customers are introduced to the other’s offerings. It can also lead to bundled solutions that make the combined entity more attractive to the market.
For instance, a software company that specializes in payroll might acquire an HR technology platform. Together, they could offer a more complete solution to employers, increasing customer retention and revenue.
Vertical Integration
Pursuing vertical integration through acquisition allows a company to gain more control over its value chain. By acquiring suppliers or distributors, businesses can secure critical inputs, improve margins, and create a more reliable flow of goods or services.
This strategy often leads to better coordination and reduced costs. It also helps reduce dependency on third parties, which can be especially valuable in times of disruption or inflation.
For example, a consumer goods manufacturer might acquire a packaging supplier to ensure consistent quality and cost control. Or a retailer might purchase a logistics company to streamline delivery and improve customer experience.
Diversification Plays
Diversification plays involve acquiring companies in completely different industries or markets. These moves help reduce reliance on any single sector and can serve as a hedge against market volatility or cyclical downturns.
This approach can also unlock new revenue streams and provide access to fast-growing sectors that complement the buyer’s existing portfolio. For companies facing saturation in their core business, diversification offers a way to reignite growth.
For example, a food manufacturer could acquire a pet food brand to enter a growing market adjacent to its core business.
Technology Acquisitions
Technology acquisitions are driven by the need for innovation and staying ahead in a competitive landscape. Companies often acquire tech firms to gain access to proprietary software, intellectual property, or technical talent.
These acquisitions can accelerate product development, enhance digital capabilities, and open the door to entirely new business models. They’re especially common in industries being transformed by digital technologies.
For example, a legacy financial institution might acquire a fintech startup to modernize its service offerings and appeal to a younger, tech-savvy customer base.
Geographic Expansion
Geographic expansion as an acquisition strategy helps companies enter new markets faster and more efficiently than building from scratch. By acquiring a business already established in the target region, buyers gain local market knowledge, customer relationships, and operational infrastructure.
This approach also reduces the risk and time associated with organic expansion. It can quickly grow a company’s revenue base and strengthen its competitive position in untapped or underpenetrated geographies.
For example, a US-based healthcare provider might acquire a European clinic network to extend its international presence and serve new patient populations.
Challenges and Risks in Acquiring Potential Targets
Acquiring a company can be a powerful growth strategy, but it’s not without its challenges. Many deals fail to deliver expected returns due to various reasons.
Integration challenges: Merging operations, systems, and teams can cause significant disruption. Poor integration planning may lead to confusion, inefficiencies, and lost productivity. Cultural clashes between organizations can also erode morale and hinder collaboration.
Regulatory hurdles: Some deals trigger regulatory scrutiny, especially in highly regulated industries or when they may impact market competition. Buyers need to anticipate antitrust reviews and navigate approval processes carefully.
Overpayment risks: Competitive bidding or unrealistic growth projections can drive up valuations. Overpaying for a target limits return on investment and increases pressure to realize synergies quickly.
Hidden costs: Beyond the purchase price, acquirers often face costs related to legal fees, advisory services, IT integration, and employee retention. These can eat into the projected value of the deal if not properly accounted for.
Underperformance post-acquisition: Even with thorough due diligence, the target may not meet financial or operational expectations. Market shifts, talent departures, or internal issues can derail performance.
To mitigate these risks, acquirers must invest in upfront planning and deep due diligence. A proactive approach to risk management, clear integration roadmaps, and open communication across teams can significantly improve the odds of success.
Discover and Evaluate M&A Targets with Grata
Grata helps you navigate private markets with confidence. Source deals, streamline diligence, and connect with other dealmakers — all in one place.
Schedule a demo today to start transforming your pipeline.
FAQs
What is an M&A target?
An M&A target is a company identified as a potential candidate for acquisition or merger. This company may align strategically, financially, or operationally with the acquirer’s goals, making it a valuable addition to the buyer’s portfolio.
How do I find M&A targets?
Finding M&A targets involves a combination of market research, strategic analysis, and professional networks. Tools like Grata can help identify companies based on industry fit, financial health, growth signals, and executive contact information.
What are potential acquisition targets?
Potential acquisition targets are companies that meet specific criteria set by a buyer — such as size, market position, product offerings, or geography — and could deliver strategic value through a merger or acquisition. These targets can include competitors, complementary businesses, or firms in new markets.
What makes a company a good M&A target?
A good M&A target is one that aligns with the buyer’s long-term goals, demonstrates solid financial performance, and offers growth potential. Other qualities include cultural compatibility, operational synergies, and a strong market position.
How do you screen M&A targets?
Screening M&A targets involves evaluating factors such as strategic fit, revenue trends, profitability, and customer base. Buyers also assess risks, integration potential, and legal or regulatory concerns before advancing to due diligence.
What is target analysis in M&A?
Target analysis in M&A is the process of deeply evaluating a potential acquisition to understand its strengths, weaknesses, risks, and value. This includes financial modeling, operational reviews, market comparisons, and synergy forecasting to determine if the deal makes sense.
