Thorough market research has multiple benefits for the astute M&A operative. It sets you apart from other buyers by arming you with crucial information when approaching prospects. It also constitutes one of the early steps in the due diligence that is part of any acquisition program. This is a vital consideration. The conventional concept of “due diligence” is a formal process that begins late in the buying process. With the Roadmap approach we use at Capstone, due diligence starts from day one. Undertaking quality research early on will protect you from costly surprises later, and in fact makes the formal vetting that will be required later far smoother and less disruptive.
In most cases, you’ll need to conduct both primary and secondary research. Secondary research, where you draw from public sources such as the Internet and databases, is the easier of the two. When your focus is markets rather than individual companies, secondary research can reveal a wealth of information about market size, growth rates, supply chains and other market dynamics. The US government, Wall Street and individual industry associations have plentiful market information publicly available that may be pertinent.
Performing primary research successfully is an art. You are asking for someone to spend time with you answering your questions with no obvious benefit to them. You must move quickly and be specific with your questions. You are not conducting a survey but an exploratory conversation. In the back of your mind, of course, you have a list of targeted questions about the market you are researching. However, you should avoid bombarding people with a series of questions. Rather, those questions should be mixed with comments and observations that you bring to the exchange. This is where secondary research is invaluable in giving you a basic level of knowledge about the market and credibility with your source.
You can play to your source’s ego, telling them that you understand that they are expert in the field and asking for their guidance. While you will occasionally find someone who is unwilling to help (or even rude), I have found that people generally like to talk about subjects on which they are considered knowledgeable.
To get a rounded picture of a particular market, it’s a good idea to check in with a mix of customers, suppliers and distributors. And remember, sales people usually love to talk — it’s their job!