screening-acquisition-targets

# Screening Acquisition Targets

## When To Use

- Building an initial target universe for a corporate development team or buy-side advisory mandate
- Narrowing a broad industry landscape to a shortlist of actionable acquisition candidates
- Screening bolt-on targets for a platform portfolio company (PE add-on strategy)
- Refreshing or pressure-testing an existing pipeline against updated strategic criteria
- Identifying capability-gap or geographic-expansion targets tied to a specific thesis

## Inputs To Gather

- **Strategic mandate**: Acquirer's stated objectives — capability fill, geographic expansion, revenue/margin accretion, vertical integration, talent acquisition, or technology platform
- **Hard filters**: Revenue range (e.g., $20M–$150M), EBITDA floor, employee count, HQ geography, end-market verticals, ownership type (private, PE-backed, public carve-out, founder-owned)
- **Soft criteria**: Cultural fit signals, customer concentration thresholds, regulatory exposure, IP portfolio relevance, management team retention likelihood
- **Deal parameters**: Maximum enterprise value or equity check, leverage tolerance, earn-out willingness, timeline constraints
- **Source universe**: Specify databases and lists to draw from (e.g., PitchBook, Capital IQ, Mergr, proprietary CRM lists, industry association directories, prior banker outreach logs)
- **Exclusions**: Known pass targets, companies under LOI elsewhere, sanctioned entities, competitors with anti-trust overlap [VERIFY antitrust thresholds per jurisdiction]

## Workflow

1. **Confirm the screening thesis**
   - Restate the acquirer's strategic rationale in one paragraph. Get sign-off before filtering.
   - Translate qualitative goals ("expand West Coast presence") into measurable proxies (HQ or >30% revenue in CA/OR/WA).

2. **Build the raw universe**
   - Pull initial list from specified sources applying only the broadest hard filters (industry code, geography, revenue band).
   - De-duplicate by legal entity; flag subsidiaries vs. standalone companies.
   - Log universe size (e.g., "843 companies after initial SIC/NAICS + geography filter").

3. **Apply tiered filters**
   - **Tier 1 — Quantitative knockout**: Revenue range, EBITDA margin floor, ownership type, geography. Remove non-qualifiers.
   - **Tier 2 — Strategic relevance**: End-market alignment, product/service overlap score, capability-gap match. Score 1–5 or pass/fail.
   - **Tier 3 — Deal feasibility**: Estimated valuation vs. budget, known seller appetite signals, PE hold-period timing, founder age/succession triggers. Flag unknowns with [VERIFY].

4. **Score and rank survivors**
   - Weight criteria per mandate priorities (e.g., strategic fit 40%, financial profile 30%, deal feasibility 30%).
   - Produce a ranked list with composite score and individual dimension scores.
   - Separate into tiers: **Priority** (top 10–15), **Secondary** (next 15–25), **Watch list** (remainder worth monitoring).

5. **Validate the shortlist**
   - Cross-check Priority targets against recent news, M&A rumors, disclosed financials, and litigation searches.
   - Flag potential antitrust concerns if combined market share exceeds reporting thresholds [VERIFY HSR thresholds and filing requirements].
   - Identify any targets that are portfolio companies of the acquirer's existing investors or LPs (conflict check).

6. **Prepare the screening output**
   - Compile into the deliverable format below. Include methodology notes so the screening is reproducible.

## Output

The screening report should contain:

- **Executive summary**: Mandate recap, universe size at each filter stage, final shortlist count
- **Screening criteria table**: Each filter listed with definition, threshold, and pass/fail logic
- **Target shortlist**: One-page profile per Priority target covering:
  - Company name, HQ, founding year, ownership structure
  - Revenue, EBITDA, growth rate (trailing 3-year CAGR where available)
  - Key products/services and end-market mix
  - Strategic fit rationale (2–3 sentences)
  - Preliminary valuation bracket (comparable multiples or rules of thumb — mark [VERIFY] if based on estimated financials)
  - Known deal appetite or succession signals
  - Red flags or open diligence questions
- **Secondary and watch-list tables**: Name, headline metrics, reason for lower ranking
- **Methodology appendix**: Data sources, filter sequence, scoring weights, date of data pull
- **Exclusion log**: Targets removed after Tier 1/2 with removal reason (useful for audit trail and future re-screening)

## Quality Checks

- Every hard filter threshold traces back to a stated mandate requirement — no arbitrary cutoffs
- No target appears on the shortlist without a scored strategic-fit rationale
- Financial data points cite their source and vintage; any estimate is marked [VERIFY]
- Antitrust and conflict-of-interest flags are addressed before the list is circulated [VERIFY jurisdiction-specific filing thresholds]
- Universe funnel math is internally consistent (raw count → Tier 1 survivors → Tier 2 → Tier 3 → final shortlist)
- Ownership status is confirmed (a "private" target may have been acquired since the last database refresh)
- The report does not contain material non-public information (MNPI) unless sourced through compliant channels [VERIFY information-barrier policies]