Here, we take a look at the ways market research can help to ensure that your next business purchase goes without a hitch and creates the growth opportunities and value that you are hoping for from your deal.
How can market research help?
When you start out on the acquisition road, there are usually several driving factors. Among the reasons for taking over a business are expanding your market share, growing your geographical reach, adding tech and other capabilities and creating synergies between your existing businesses and the target company.
Of course, as acquisitions are rarely risk-free one should implement strategies to reduce the risk of failure, of both the transaction itself and of the post-integration. One strategy is to carry out thorough market research. Conducting market research (and we will discuss the methods you can use later) can help you to minimise the risks involved in taking over a target business and maximise the synergies created by the deal over the long term.
In order to effectively use market research in the dealmaking process you need to start at the very beginning. The earlier you begin to put market research techniques into practice, the greater benefit you will feel. This is how it’s done:
Pre-acquisition uses of market research
Before you have even identified a target, buyers can apply market research techniques to simulate different scenarios.This can help you to identify where the potential for synergies lies, which can allow you to form a better idea of the kinds of target business to look for.
Market research carried out at this early planning stage means you can avoid embarking on deals that won’t actually benefit anyone. Researching various scenarios and outcomes can help you to identify the businesses and markets on which you should be looking to make a move.
Market research can help you answer questions such as:
Is there space in my current market for growth or new players, or is there space in the markets adjacent to mine to move into?
With your existing strategy in mind, which market looks the most attractive to move into?
Is the market fragmented?
How easy is it to do business in the market?
Market research can give you access to the data you need to form a shortlist of businesses that could tick all the boxes you need to tick. This is not an easy task, but working with a market research firm can really help you get to this stage more accurately and more quickly than by working alone.
Finding a target
Now you have a shortlist of target businesses, you can cross-reference them against the synergies criteria you established earlier on in the process in order to find a suitable match, or matches. At this stage, the strategic fit needs to be considered, alongside an analysis of the targets’ position within the market and the risks associated with buying it, compared with the current position of your existing businesses, or your current financial position.
If you find a business that satisfies all your requirements and offers opportunities that outweigh the potential risks, as well as fantastic synergies, you may have just found the perfect target.
Making the deal
When negotiating a price, market research can help strengthen your hand. For example, market insights will help you to establish aspects of the target business such as category presence, brand awareness, digital readiness and prospects of growth.
During the due diligence process, market research can also come into play, giving you access to data that can better inform where the business sits within its industry and how realistic your growth strategies are.
Once you’ve completed the deal, research can better equip you for the process of bringing the synergies to life and achieving your ambitions for growth within the industry. Data such as competitor benchmarks and category forecasts can provide context for these actions.
Which market research techniques can you use?
There are two main types of market research, primary and secondary
Primary research is research you carry out yourself, whereas secondary research is all about using research already undertaken to inform your decisions.
Primary research techniques include:
Surveys are a reasonably low-cost and popular way for businesses to gather data. Quantitative surveys will gather numeric data that can be transferred into statistical programs, for example.
These are usually incorporate open-ended questions that allow respondents to give more information. Qualitative data will give in-depth insights, but will not transfer into numerical data.
These will, again, produce qualitative information that can help to create a picture of how a group of consumers view a particular scenario, for example. They often involve free discussion and are usually best run by market research professionals who are skilled at asking the right questions of the group and guiding the discussion to produce the most interesting and useful responses.
Carrying out secondary research is useful and lower cost than performing your own market research. However, you are limited to the information that is already out there. Here are some sources:
Existing surveys or industry reports
Company financial reports
Companies house data
The ideal approach is a combination of the two types of market research, which will create the most holistic view of the market in which you are hoping to grow through acquisition.
You can never have too much insight or too much data when you embark on a deal process, but it’s the intelligent use of these insights that will actually have an impact on the success of your deal, so it’s often best to work with a market research provider.
The investment will pay off if it helps you avoid costly mistakes and enables you to find a suitable target business that helps you achieve your acquisition goals.
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