I have frequently been approached by clients after a deal suddenly fell through — a deal they had been working on for months or even years. For example, I recall a manufacturer of aviation parts that was convinced they had found from the start the “Holy Grail” of acquisition targets. They believed this prospect was the perfect fit for their external growth needs. They cast aside any other candidates and poured all their energy into the pursuit of this one company. After months of positive negotiations, the prospect abruptly got cold feet and backed out. The owner decided he wasn’t ready to sell a business that had been in family hands for multiple generations. The aviation company was left to start the entire process over.

The lesson is clear. Have one reason for making an acquisition, but have many viable prospects. Don’t just have a Plan B — have a Plan C, a Plan D and so on. Create a funnel and fill it with likely prospects.

The concept of the prospect funnel is that you begin by considering a broad sweep of companies (it could be dozens or even hundreds). Gradually, you filter this list through your prospect criteria, eliminating weaker prospects step-by-step. At each stage as you move down the funnel, your research becomes more detailed and your analysis more exacting. Finally, you will identify a handful worth engaging personally, and from these you will select the company or companies with whom you initiate negotiations for a purchase.

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