Acquisition deals (buyside) are a decisive step in driving a company’s strategic growth. To identify the most suitable target companies, it is essential to use tools that provide a clear and structured perspective. Among these, the Assumption Book stands out as an essential document. It not only establishes how and why to choose a target but also defines criteria, goals, and priorities, ensuring that every decision aligns with the company’s strategy.

What is the Assumption Book and why is it important in acquisition deals?

The Assumption Book is a document that guides acquiring companies in selecting target companies by defining:

• Strategic hypotheses: which sectors, markets, or companies align best with the acquirer’s objectives.
• Selection criteria: economic, financial, and qualitative parameters to identify the best targets.
• Decision-making priorities: guidelines on how to classify and compare various acquisition opportunities.

In short, the Assumption Book not only organizes the selection process but also allows companies to anticipate the strategic and operational impact of acquisitions, minimizing risks and maximizing value.

How to structure an effective Assumption Book

An Assumption Book must follow a logical and comprehensive structure, including the following elements:

1. Strategic objectives of the acquisition

This section answers the fundamental question: why do we want to acquire?

Common objectives include:

• Geographic expansion into new markets.
• Diversification of product or service offerings.
• Strengthening the supply chain or production capacity.

Clearly defining objectives ensures alignment across the decision-making process.

2. Profile of the ideal target

This section outlines the key characteristics a target must have to align with the company’s strategy:

• Company size: minimum/maximum revenue, number of employees.
• Market position: market share, reputation, niches served.
• Financial performance: economic stability, operating margins, positive cash flows.

3. Target evaluation criteria

Establishing parameters to compare potential targets is critical. Key criteria include:

• Financial metrics: EBITDA, industry multiples, capital structure.
• Operational capabilities: distinctive technologies, production efficiency, scalability.
• Expected synergies: cost reductions, access to new markets, revenue growth.

4. Simulations and post-acquisition business plan

This section focuses on what happens after the acquisition, forecasting:

• Scenario simulations: analysis of financial, operational, and strategic impacts using a sample target.
• Financial projections: income statement, balance sheet, and cash flow forecasts for the next three years.
• Synergy evaluation: opportunities for growth, cost reduction, and profitability improvement.
• Operational implications: necessary investments or organizational changes to integrate the target.

5. Guidelines for due diligence

The Assumption Book should include clear instructions for deeper analysis of selected targets:

• Key contracts (customers, suppliers, licenses).
• Management stability and key competencies.
• Analysis of regulatory, environmental, and financial risks.

6. Target prioritization

Not all opportunities are equally valuable. The Assumption Book helps classify targets based on:

• Strategic alignment: how well the target aligns with the acquirer’s objectives.
• Economic feasibility: required resources and financial impact.
• Potential risks: challenges that could compromise the success of the deal.

Why Is the Assumption Book so important for SMEs?

Here are three key reasons:

1. Better decision-making: provides a structured framework for selecting target companies with confidence.
2. Time and resource efficiency: focuses efforts on opportunities with the highest potential for success.
3. Clear strategic planning: anticipates post-acquisition impacts and facilitates effective integration management.

Conclusion

In buyside M&A operations, the Assumption Book serves as the strategic compass that guides the acquirer toward the best choices. By defining how and why to select target companies, this tool provides a solid foundation for successful transactions.

Winnerge helps businesses create customized Assumption Books that guide every phase of the decision-making process.