1. Introduction

Many acquisition failures do not begin with a flawed integration plan, an inflated valuation, or a poorly negotiated purchase agreement. They begin earlier, when companies decide which targets are worth considering at all.

M&A teams routinely spend months on due diligence, negotiating terms, and significant resources in integration planning. Yet the initial screening process, arguably the most consequential phase of the entire acquisition journey, is frequently completed under time pressure, shaped by advisor networks, familiar market knowledge, and database searches that are narrower than they appear.

This matters because every subsequent decision depends on the quality of the initial opportunity set. If strategically relevant targets never enter the longlist, no amount of due diligence can recover them. If the shortlist is built around easily measurable indicators rather than strategic fit, later analysis only refines a biased selection. And if teams commit prematurely to targets that are available, familiar, or championed by influential stakeholders, the transaction may already be moving in the wrong direction before formal evaluation begins.

Research based on 89 interviews with M&A managers reveals a consistent pattern: traditional screening approaches systematically exclude strategically relevant targets, not through one dramatic error, but through a sequence of small distortions. We call this the accumulation effect: the progressive dilution of strategic intent as it moves through each phase of the screening process.

2. Problem 1: Why Longlists are Rarely Long

In principle, a longlist should represent a broad view of the strategic opportunity space. In practice, it tends to reflect what the organisation already knows, where it operates, which names it recognises, and whom its advisers or internal networks happen to surface.

A longlist of 30, 50 or even 100 companies may feel comprehensive if it includes the most visible players in a market. Yet it may represent only a small fraction of the relevant opportunity set. Companies in adjacent industries may be solving similar customer problems. Firms in less familiar geographies may hold strategically valuable capabilities. Smaller or less visible firms may possess technologies or business models that simply do not appear in standard search criteria.

Three cognitive patterns consistently reinforce this problem:

• Distance bias leads managers to prioritize targets that are geographically, culturally, or organizationally close because familiar territory feels easier to assess. The result is a search process that privileges proximity over strategic relevance. The best target for a capability building acquisition, however, may not be found in the acquirer’s existing network or home market.

• The bike shed effect causes teams to default to criteria that are easy to specify and evaluate such as revenue size, industry classification, ownership type, although they rarely capture the actual logic of strategic fit. More complex dimensions, such as capability complementarity, technological adjacency, customer problem overlap, or business model compatibility, tend to be postponed or ignored.

• Post-hoc rationalisation ensures that once a narrow search scope has been defined, teams justify it as pragmatic or focused. The argument of a broader search would produce too many results, consume too much time, or distract from the core market. These arguments are operationally valid, but they can conceal a more fundamental problem: the organisation defines its opportunity space around what is manageable, not around what is strategically relevant.

The consequence is simple but severe: the best fitting targets never fail the evaluation. They never enter.

3. Problem 2: When Past Numbers Replace Future-Oriented Strategy

The second distortion occurs when the longlist is
converted into a shortlist. Under pressure to compare companies and reduce complexity, screening typically shifts toward indicators that are easy to collect, quantify, and rank.

Financial KPIs become the default: revenue, EBITDA, growth rates, cash flow, return on equity, and other historical indicators provide apparent objectivity. They are comparable across firms, they fit into spreadsheets, and they give the process an appearance of objectivity. The problem is not that financial indicators are irrelevant, they clearly matter. The problem is that they become dominant too early and for the wrong reasons.

In capability-driven or transformation-oriented acquisitions, the critical question is not whether a standalone target currently performs well on traditional KPIs. It is whether the target can help the acquirer build, access, or renew strategic capabilities. That future-oriented logic is much harder to capture with historical financial data.

Two reinforcing biases are particularly important here:

• Anchoring means that the first information received, typically financial, becomes the reference around which all subsequent evaluation revolves. Targets that look weak against these anchors may be excluded before their strategic potential is properly understood. Firms investing heavily in R&D, building new capabilities, or entering new markets can look unattractive in traditional financial terms precisely because they are preparing for future growth.

• The Halo effect means that strong performance on one visible dimension creates a positive impression across other dimensions that have not actually been assessed. Financially strong firms may be assumed to have strong management, a sound strategy, attractive capabilities, or cultural compatibility. While a firm with moderate financials may be dismissed despite holding exactly the technology, talent, or market access the acquirer needs.

The result is a subtle but consequential substitution: Instead of asking, “which targets best support our strategic intent?”, the process begins to ask, “which targets look strongest on the metrics we can compare?” These are not the same question.

4. Problem 3: Why “Good Enough” Wins

The third distortion occurs once a shortlist exists and the organisation begins to focus on a small number of preferred targets. By this stage, time and effort have been invested, internal attention has been mobilised, and the process has momentum.

Targets known to be available receive disproportionate attention. Availability becomes a proxy for attractiveness. If a company is for sale, open to a conversation, or already known through an advisor, it can quickly become the focal option. The pressure to move forward is reinforced by the fear of appearing indecisive.

Two decision-making traps are especially relevant:

• Safety bias means the perceive cost of walking away after weeks or months of work can feel more painful than the abstract possibility that a better target exists elsewhere. Restarting the search appears costly, uncertain, and politically difficult. Continuing with an available option feels safer, even if it is not optimal. The threshold for what counts as sufficient quietly lowers. A target that meets some criteria, is available, and has internal support begins to look attractive enough. The organisation gradually shifts from searching for the best strategic fit to justifying of workable deal.

• Authority and confirmation bias compound the problem. Target recommended by respected advisors, senior executives, business unit leaders, or trusted network contacts receive implicit legitimacy. Once a target becomes favoured, subsequent evaluation tends to focus on confirming its attractiveness rather than on challenging the underlying assumptions. Contradictory information gets reframed as manageable. Alternative targets receive less attention because they lack an internal sponsor.

Commitment builds not through a single formal decision, but through accumulated attention, meetings, and narratives. The more the organisation talks about one target, the more inevitable it becomes. Better alternatives fade not because they were evaluated and rejected, but because they were never seriously engaged.

5. The Accumulation Effect

These three distortions do not act in isolation, they compound. Distance bias and familiar networks create a longlist that is smaller and more conventional than the strategic challenge requires. Anchoring and the halo effects shift comparison toward historical financial indicators and easily measurable attributes. Safety bias, authority, and confirmation bias then increase commitment to targets that are known, accessible, or internally supported.

Strategic intent is therefore progressively diluted as it moves through the screening process. An ambitious acquisition rationale like new capabilities, technological renewal, market access, or portfolio transformation, is translated into narrower search parameters, simplified evaluation criteria, and preference-driven decision-making. By the time the organisation reaches due diligence, it may be applying sophisticated analysis to a target set that was never strategically complete.

This explains why many M&A processes feel professional and still disappoint. Teams work hard, advisors provide analysis, models are built. But the quality of the final decision remains constrained by the quality of the initial opportunity set and the logic used to narrow it.

In other words, M&A screening can fail quietly. It does not fail through obvious mistakes, but through reasonable decisions that compound.

6. Implications for Practice

Better M&A screening is not simply a matter of adding more targets, more data, or more process discipline. The deeper challenge is to keep strategic intent alive throughout the entire screening journey.

When developing a longlist, the question should not only be, “which companies do we know?” but “which companies could plausibly hold the capabilities, technologies, customer access, or business model elements required by our strategic rationale, even if they sit outside our familiar field of vision?” When moving from longlist to shortlist, the question should not only be, “Which companies perform best on comparable indicators?” It should be, “Which indicators genuinely reflect the future value we are trying to create through this acquisition?” When evaluating preferred targets, the question should not only be, “can we make this deal work?” It should be, “Compared with what?”

These questions challenge some of the strongest tendencies in M&A decision making. They require teams to resist premature closure, to distinguish measurability from strategic relevance, and to treat availability as information rather than as justification.

Technology-enabled approaches combining algorithmic market scanning with AI-powered strategic analyses are increasingly able to address the structural constraints that drive these biases: the cost of breadth, the difficulty of quantifying strategic dimensions, and the speed pressure that pushes teams toward familiar options. But the underlying discipline must come from the team itself.

M&A screening is therefore not an administrative pre-phase. It is a core strategic activity. Done well, it expands the organisation’s field of vision, protects the acquisition rationale, and improves the odds that the deal pursued is not merely available but truly valuable. Done poorly, it creates a path-dependent process in which convenience becomes strategy.

Because in M&A, the deal you sign is often shaped by the targets you never saw.