Beat the Acquisition Competition

Buying a business is the hot new investment move promoted in the media. Business acquisitions are simple, but not easy. The hardest parts of acquisitions include identifying who other buyers are and beating them to the ‘punch,’ and finding the right company to purchase.

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If you would like to beat the competition and find the best deals, follow the suggestions below to get started on the right foot.

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Get Narrow

If you are looking for ‘anything,’ you will find ‘everything,’ which is not necessarily what you want to buy. Make your buy-box as narrow as possible. A buy-box includes the industry, size, location, management structure, and other qualifiers of the perfect acquisition. For example, instead of looking for anything, seek $1M companies in the plastic manufacturing industry within a two-hour drive of Indianapolis. Having a tightly identified acquisition target market will help you find the business you are looking for and stay below the radar of competitors in the deal space. ?

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Identify Your Competitors

The deal space is competitive, and you must know who is going after the same deals that appeal to you. Strategic buyers, or competitors, of the acquisition targets are always on the hunt to purchase smaller players in the market. If you are searching for companies over $1M in profit, private equity firms and family offices are looking for the same deals.

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To overcome competition, narrow your buy box, create an investor one-pager that lists your qualifications as a business buyer, execute a thorough sourcing strategy, and be financially prepared to act quickly.

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Effectively Source Deals

Finding off-market companies for sale is not easy. Even though you can find businesses for sale online (which is a simple first step to find companies for sale), the best deals are actively found through an off-market sourcing strategy.

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The masters at sourcing use direct mail, telemarketing, social media, trade journals, ads, and more to find companies who are open to a conversation about selling. Many acquirers leverage their CFO, accountant, attorney, or business broker to find companies to purchase. Another idea is to search for brokers in the geography that you want to acquire in and scour their websites for the right business. If you are seeking larger businesses for sale ($1M+ profit), search for private equity firms that invest within your target industry, and contact them to see if the private equity firm is exiting from deals in their portfolio.

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Get Your Money Together

Start your search with your loan or investors committed. If you are financially prepared, once you find the right acquisition, you will be able to move quickly before a competing offer is made.

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Begin talking to SBA lenders early in the process. Some local, most regional, and nearly all national banks have a SBA loan department. A conversation with your current bank is a good starting point. Then, complete the SBA loan application which includes personal financial information, tax returns, and credit scores, etc. When you find a target company, you can simply give the lender the company’s financials, and the bank can quickly return feedback on whether financing is feasible. Remember, you will need 10-20% cash down on a business that you purchase using a SBA loan. Seller financed deals are few and far between. Do not expect to purchase a business with $0-down or without the use of bank or investor funds.

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To solicit investor funds, prepare an acquisition plan and pitch it to friends, family, and business associates. Ask for a specific amount of money for a specific buy-box target. Once the investor has decided to support, have them sign a commitment letter. The letter simply states that the investor is committed to supporting an acquisition, lists the potential investment amount, and includes an expiration date for the commitment. The investor does not need to submit funds until it is time to actually close on the purchase of the business.

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The business acquisition market is popular and crowded. There are more buyers than sellers, so demand is high, market prices are stable, and competition to find deals is rampant. However, if you clearly identify your acquisition target market, know who your competitors are, source deals where others will not, and have your money together, you will have success at overcoming the challenges of finding a business for sale.

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Jamar Cobb-Dennard is a business broker and M&A attorney. To learn more about how to buy or sell a business, contact Jamar at [email protected].