Why the Best Acquisitions Start with Capability, Not the Target

For Nigerian companies pursuing acquisitions, the strongest transactions are not necessarily the largest. The most effective deals secure a capability the business needs and convert it into measurable competitive advantage.

Acquisitions can provide immediate access to technology, distribution networks, licences, infrastructure, specialist talent or new markets that could take years to develop internally.

However, speed does not automatically create value. A company can complete a transaction quickly and then spend years managing an asset that never delivers the expected strategic benefit.

That distinction separates a disciplined acquisition strategy from corporate accumulation.

Start with the Capability, Not the Target

Acquisition discussions often begin when an attractive company becomes available. Management then develops a rationale for buying it.

This reverses the proper sequence.

An available target can quickly generate its own momentum. Revenue forecasts become optimistic, synergies expand and risks appear manageable because decision-makers become attached to the opportunity.

Instead, the buyer should first identify the constraint limiting its next stage of growth.

• Technology
• Production capacity
• Market access
• Intellectual property
• Specialist talent
• Customer relationships
• Operating infrastructure

The answer must be specific.

“We need digital capability” is too broad.

“We need an established digital platform that can reduce product-launch time by two years and provide access to a defined customer segment” is a clear and investable acquisition thesis.

Only after defining the required capability should the company identify and evaluate potential targets.

The best target may not be the largest or most visible business. It is the organisation whose capabilities, economics and operating model most effectively address the buyer’s strategic need.

Prove That Acquisition Is the Right Route

A capability gap does not automatically justify an acquisition.

The same capability may be obtained through internal investment, strategic partnerships, licensing arrangements, joint ventures or minority investments.

While full ownership offers greater control, it also creates the highest capital commitment and integration risk.

Boards should assess alternatives against five key factors:

• Speed of access
• Capital required
• Degree of control needed
• Execution and integration complexity
• Realistic value creation potential

It becomes much harder to justify when a buyer pays a control premium for a capability that could have been accessed through a lower-risk arrangement.

For cross-border acquisitions, the analysis must also account for currency exposure, taxation, regulatory approvals and the practicality of operating the acquired capability within the Nigerian market.

The question is not simply whether the company can acquire the asset. It is whether the company can own and operate that asset more effectively than alternative routes would allow.

Value What the Buyer Can Actually Capture

The target’s standalone value is not the same as its value to a specific buyer.

Boards must separate three distinct value components:

• What the target can generate independently
• The additional value expected from combining the businesses
• The proportion of that value the buyer can realistically capture

This distinction matters because synergies are often overstated.

Revenue benefits may depend on customer behaviour changing. Cost savings may require difficult operational decisions. Technology advantages can be delayed by incompatible systems. Key employees may leave after completion of the transaction.

As a result, due diligence should do far more than verify financial information.

It should rigorously test whether the acquisition thesis remains valid after examining:

• Earnings quality
• Liabilities and obligations
• Customer concentration
• Technology architecture
• Governance practices
• Regulatory considerations
• Operational dependencies

Integration planning should begin before the acquisition is signed.

The buyer should already understand which capabilities must be protected, which leaders are critical to success, what should be integrated, who owns the expected benefits and how outcomes will be measured.

Five Questions Every Board Should Answer First

Before authorising a target search, the Board and executive team should answer the following questions:

1. What exact capability do we need?
2. Why must we obtain it now?
3. Why is buying superior to building or partnering?
4. What measurable value must ownership create?
5. What price, risk or condition would make us walk away?

These answers become the acquisition mandate.

Every target, valuation assumption and transaction structure should be tested against it.

Without this discipline, organisations risk allowing an available target or persuasive seller to determine their investment logic.

The Decision Before the Deal

Acquisitions can compress years of capability development into a single transaction.

They can also introduce complexity, consume executive attention and destroy shareholder value.

The difference often begins long before negotiation or closing.

It begins with the quality of the acquisition thesis.

If no company were currently for sale, could we still state precisely what capability we need, why we cannot build it in time and what measurable value ownership must create?

If the answer is no, the organisation may not yet be ready to acquire.

It may only be ready to be persuaded.