How to Judge the Strategic Fit of a Business Before You Buy It
- Andrew Edwards
- Jul 30
- 2 min read
Acquire. Grow. Thrive.
Nothing destroys deal value faster than buying the wrong business. A target may look attractive on paper, yet if it can’t advance your long‑term strategy, integrate smoothly or unlock new growth, you’ll spend years untangling a costly mistake.
At Pirongia Capital we help founders and corporates avoid that trap. Below is the seven step framework we use to test strategic fit and we have included a real world New Zealand example.
1. Start with Market Fit and Core Competencies
Ask: “Does this acquisition deepen what we already do well, or distract us?”
Map the target’s products, customers, channels and technology next to your own.
Look for overlap that creates leverage, not cannibalisation.
Check TAM (total addressable market) growth, not just current revenue.
2. Align with Your Growth Strategy
Every acquisition should close a strategic gap. Be it geography, capability, or customer segment. Score the target against your five year plan: High / Medium / Low impact and potentially walk away from anything under “Medium”.
3. Quantify the Value Creation Levers
Synergies sound great; numbers matter more. Build a bottom up model of:
Cost take‑outs (shared overheads, procurement power)
Revenue upsides (cross‑sell, pricing lift, new verticals)
Capital efficiencies (shared infrastructure, working capital release, retentions)
Stress‑test assumptions and bake in execution costs.
4. Test Cultural and Leadership Compatibility
Harvard research shows 70 % of failed M&A deals cite people or culture issues. Interview key leaders early, compare decision‑making styles, and run a Day One Integration workshop to surface red flags.
5. Audit Innovation Potential
Will the target keep you relevant five years from now? Examine:
IP portfolio
R&D pipeline
Adaptability to tech trends (AI, automation, ESG reporting) even in traditional industries, innovation can be the moat.
6. Check Regulatory and Execution Risk
In New Zealand that means Commerce Commission thresholds, Overseas Investment Act approvals, and industry specific licences. Timeframes can stretch deals you need to plan contingencies just in case.
7. Confirm Resource Overlap and Operational Fit
Walk through back office systems, supply and subcontractor contracts. Anywhere you see duplicate effort is either a synergy or an integration headache you need to budget for both.
Example: Building a National Electrical Powerhouse
During my tenure at McKay we explored acquiring a regional electrical contractor to accelerate nationwide coverage. Using the framework above we found:
Result: post transaction revenue grew 28 % in year one, validating the strategic fit.
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