70 to 75% of acquisitions fail to achieve their objectives, and around 70 to 90% underperform expectations. This fact, without question, is pretty sobering. However, it doesn’t stem from a lack of opportunities. Instead, it stems from an unclear strategy and assumptions. 

Dealmakers can overcome this issue with an acquisition thesis. This is a clear roadmap that can link each target audience to the buyer’s existing strengths, data, and goals, increasing the chances of success. 

What an Acquisition Thesis Is

An acquisition thesis is a framework that defines what types of businesses to acquire, why they make sense, and the value they’ll bring.

It sets criteria around industry focus, business models, and strategic fit, ensuring each acquisition aligns with the company’s growth objectives.

How to Build an Acquisition Investment Thesis

Step 1: Start With What You Already Have

The most successful acquirers focus on sectors and businesses they already know well. 

Therefore, your thesis should leverage your strengths: 

• Industry Expertise: Choose industries or niches where you have proven knowledge. This could be a sector you’ve operated in for years or a market where you have established insight. 

• Operational Capabilities: Consider your current company’s core competencies (technology, distribution channels, personnel, production facilities, etc.). Targets should complement what you already do. 

• Relationships and Networks: Leverage existing customer, supplier, and partner relationships. Acquisitions are far easier when you have market access or brand recognition already established. 

• Management Bandwidth and Integration Ability: Assess how many and what size of deals you can realistically take on. A thesis should respect your team’s capacity to manage new acquisitions without overextension.

Spend time on this. Gather resources and truly understand what you already have. It’ll shape your thesis for the following steps. 

Step 2: Use Your Existing Business Data

Once you have a good understanding of what you currently have, you’ll want to ground your acquisition thesis in hard data.

This turns your thesis from wishful thinking to reality.

Begin by reviewing your company’s financials. Analysis current revenue sources, profit margins, cost structure, etc.

Doing so will help you understand how an acquisition may complement your business.

Performing a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis on your existing business is also a good idea.

By identifying core strengths and weaknesses, you’re able to guide where acquisitions could be most beneficial or defensive.

A gap analysis is worth considering as well. Assessing what you don’t have means you’re able to find acquisitions to fill these gaps.

Perhaps it’s a missing capability, a channel you lack, or a segment you don’t serve.

By reviewing your company’s financial data and performing a SWOT and gap analysis, you solidify your thesis in concrete terms.

Instead of generic growth talk, you’ll see exactly where an acquisition must improve results.

Step 3: Define How Value Will Be Created

Every acquisition thesis needs to explain how value will be created with each deal. 

Common value drivers include: 

• Operational Efficiencies: Will the acquisitions enable cost savings (for example, by consolidating overhead or improving supply chain scale)?

• Revenue Growth: Can the target help you sell more to existing customers or cross-sell into new markets? 

• Market Expansion or Consolidation: Does the deal expand your geographical reach, product lineup, or customer base? 

• Strategic Positioning: Will buying this business improve your strategic positions (for example, by acquiring a specific type of technology, brand, or talent)? 

Alongside this, add downside considerations to your thesis. These could be such things as integration costs or disputes. 

Step 4: Factor in Capital and Financing Reality

Finally, an acquisition thesis should include the financial constraints and goals of the organization. 

During this, you’ll want to clearly define how much equity and debt capital are available, how much leverage the business can sustain, and how those constraints affect deal size and pacing. 

In advance, decide how acquisitions will be financed and how capital will be deployed over time.

Doing so will ensure that you are sized realistically and don’t encounter financial issues after the deal has been made.

Platform Companies and Acquisition Growth

In many buyout strategies, the very first deal is a platform acquisition. This is what sets the stage for future growth. 

Simply, a platform company is the initial, sizable acquisition in a given industry or sector that serves as the foundation for rolling up smaller dealers.

Such a company should already have strong management, stable processes, and enough scale to absorb add-on acquisitions.

As you can see, having a platform company in your acquisition thesis is essential.

It acts as the foundation to build upwards, as the company already has the infrastructure for business and the credibility of financing.

Platform-plus-bolt-on strategies are more common than you may think as well. One study found that 56% of private equity deals and 44% of corporate deals are bolt-on acquisitions.

Therefore, it goes to show why building a strong, initial platform is essential.

Applying the Acquisition Thesis to the M&A Process

An acquisition thesis only creates value when it’s applied consistently throughout the deal lifecycle. Ideally, it should guide decisions at every stage of the M&A process, from the initial screen to integration planning. 

• Target Screening and Prioritization: Use the thesis as a filtering mechanism. Define clear criteria around the industry, size, performance, and geography to find ideal acquisition candidates. 

• Due Diligence Focus: Direct diligence efforts towards the areas most important to the thesis. For example, if value creation depends on cost synergies, focus on operational and cost analysis. 

• Valuation Discipline and Deal Structuring: Allow the thesis to set pricing boundaries and return expectations. Deals that only meet these targets on aggressive assumptions should be skipped. 

• Integration Planning: Align integration planning with the thesis from the outset. Identify the specific post-close initiative required to realize the value of the deal. 

We’d say that an acquisition thesis is most important at the beginning of the M&A deal cycle, as it’ll help you research and find good deals. However, during the entire process, it can be referred back to, ensuring the deal you’re acquiring still fulfills your thesis. 

The Benefits of a Thesis-Driven Acquisition Strategy

When a thesis-driven acquisition strategy is successfully executed, it can present several benefits.

Clearer Deal Selection

With an acquisition thesis, you remove a lot of “noise”. Instead of looking at hundreds of different types of deals, you review a select few.

These are often high-quality targets that meet your criteria as well.

Simply, with a thesis, every target is assessed in context. If a potential acquisition doesn’t meet the strategy (market, size, or value drivers), then it’s filtered out early on.

No time is wasted, and you have a much clearer dealer selection.

Reduced Downside Risk

When acquisitions align with a clear thesis, naturally, you have reduced downside risk.

You avoid buying businesses you don’t understand or can’t integrate, cutting the risk of failure.

In this regard, a thesis is like a guide. It ensures you only perform deals on businesses that are suitable for your growth plan. 

More Consistent Value Creation

A thesis-driven strategy is also repeatable.

It’s not random or luck. It’s something that can be used time and time again to help guide and execute deals that’ll benefit your business.

Therefore, instead of small, isolated wins from “luck”, your portfolio will see more consistent gains. Anyone in business, regardless of experience, would rather consistently over random outcomes. 

Over time, this repeatable methodology can be improved and optimize as well. As a result, with time, it can lead to higher rates of consistent growth. 

Scalable Acquisition Growth

A solid acquisition thesis also scales with your ambitions. It provides the structure needed to grow through multiple dealers, such as creating a platform company and adding multiple bolt-on companies. 

Because the strategy and processes are documented in a thesis, you can also inform and scale a team.

New members can quickly learn the logic behind the thesis and have a solid playbook on how to find the right acquisitions for your goals.

Conclusion

A profitable acquisition growth strategy starts with a clear acquisition thesis.

It’s the foundation of the dealmaking process, helping you align your existing assets, expertise, data, and capital constraints with potential buy-outs.

We at OCX Advisors partner with companies to put these principles into practice.

If you’re looking to sell or acquire a company today, feel free to contact one of our professional advisors to help.