How to Define Acquisition Criteria

The most common way acquisitions fail is not because of a bad price, but because of a bad fit. When a business owner decides to grow through acquisition, there is often a rush to start 'looking at deals' before they have clearly defined what a 'good deal' actually looks like for their specific business.

Defining acquisition criteria is the process of setting the boundaries for your search. It allows you to filter out the noise and focus your energy—and your capital—on the targets that will genuinely move the needle. This article explains how to build a robust set of criteria to guide your acquisition strategy.

Why criteria matter: Avoiding 'Deal Creep'

In the world of M&A, 'deal creep' is a common phenomenon. It happens when a buyer starts with a clear idea of what they want, but slowly begins to lower their standards or change their focus because a particular opportunity looks 'interesting' or 'cheap'. Acquisition criteria are the antidote to deal creep. They provide the objective framework you need to say 'no' to opportunities that don't fit, even if they seem attractive on the surface.

The four pillars of acquisition criteria

To be effective, your criteria should be specific, measurable, and agreed upon by your leadership team. We recommend structuring them around four pillars.

1. Strategic Intent (The 'Why')

Every acquisition should serve a specific strategic purpose. Your criteria should explicitly state what that purpose is. Common intents include:

• Market Consolidation: Increasing your share of an existing market by buying competitors.
• Geographic Expansion: Entering a new region or country by buying a local player.
• Capability Addition: Acquiring a company that has a technology, skill, or service you don't currently possess.
• Customer Diversification: Reducing your reliance on a few large customers by acquiring a business with a different client base.

2. Financial Parameters (The 'Scale')

You must define the size of business you are willing to consider. This is not just about what you can afford; it's about what you can integrate. Criteria should include:

• Minimum and maximum turnover: (e.g., £2m to £10m).
• Profitability thresholds: (e.g., minimum EBITDA of £250k or a specific profit margin).
• Deal structure preference: (e.g., a preference for owner-managed businesses where the founder is willing to stay on for a transition period).

3. Operational Profile (The 'Fit')

What kind of business are you actually buying? The operational profile helps you filter by activity and structure. Consider:

• Sector and Sub-sector: Be as specific as possible (e.g., 'Precision engineering for the medical sector' rather than just 'Manufacturing').
• Management Structure: Do you want a business with a strong middle-management layer, or are you comfortable taking over a 'founder-dependent' operation?
• Asset Base: Does the business need to own its premises and equipment, or are you looking for a capital-light service business?

4. Geographic Boundaries

Where should the business be located? For many UK SMEs, geography is a critical factor in integration. Criteria might specify a specific region (e.g., 'North West England') or a maximum travel time from your headquarters. If you are looking for international expansion, you must define which countries or markets are acceptable.

Hard vs Soft criteria

It is helpful to distinguish between 'hard' criteria (deal-breakers) and 'soft' criteria (preferences).

• Hard Criteria: 'Must have at least £3m turnover,' 'Must be within 2 hours of London,' 'Must not have significant debt.' If a target doesn't meet these, it is immediately disqualified.
• Soft Criteria: 'Ideally has ISO 9001 certification,' 'Preferably uses the same ERP system as us,' 'Ideally has a recurring revenue model.' These are used to prioritise targets that have already met the hard criteria.

Using your criteria in the sourcing process

Once defined, these criteria should be used to filter your pipeline at every stage. In the identification phase, they help you build a 'long list' of companies. In the research phase, they help you narrow that down to a 'short list' of high-priority targets.

Evans uses your specific acquisition criteria to power the Acquisition Opportunity Engine (AOE). By starting with a clear definition of what you want, we can provide research and intelligence on the targets that genuinely fit your business, saving you months of wasted effort.

Reviewing and refining your criteria

Acquisition criteria should not be set in stone. As your business grows and the market changes, your criteria may need to evolve. However, changes should be deliberate and strategic, not a reaction to a single 'interesting' deal that has landed on your desk. We recommend reviewing your criteria every 6 to 12 months as part of your strategic planning process.

If you haven't yet defined your criteria, a good starting point is our 'Build My Acquisition Thesis' tool. It provides a structured framework for setting these boundaries and ensuring your acquisition strategy is built on a solid foundation.

Conclusion

Defining acquisition criteria is a discipline that separates the professional acquirers from the opportunistic buyers. By setting clear boundaries for strategic intent, scale, operational fit, and geography, you can build a more efficient, more focused, and ultimately more successful acquisition pipeline. In the world of M&A, knowing what you *don't* want to buy is just as important as knowing what you do.