Consider A Buyer’s Motivations to Transact

By: Kelly Lusson

The sell-side acquisition journey is a nuanced and multifaceted process, with each phase crucial to ensuring the desired outcome for the seller. Developing a tailored, strategic list of potential buyers who align with the seller’s objectives and vision is one of the most pivotal steps in the process and can dramatically influence the outcome of the sale. It is important to consider a wide range of different types of buyers, while also focusing on those that are most likely to transact. Balancing broad outreach with specific gating criteria will maximize the efficiency of time spent during outreach, evaluation, and distribution of marking material.

In building a pool of prospective buyers, it is helpful to consider the reasons why a strategic or financial buyer would be interested to acquire. Some of the most common motivations, transaction examples, and the types of buyers to search for are as follows:

Accelerated Growth and Market Dominance:

• Motivation: the opportunity to quickly expand into a new market, product line, or customer demographic or to eliminate a competitor.
• Example: a regional distributor aiming to expand its presence nationally might be interested to acquire a local brand from another region with an established customer base - this not only offers immediate access, but also removes a competitor from the equation.
• Search for: companies bearing resemblance to the seller in terms of product or service offering, regulatory framework, or competitive landscape.

Operational Synergies and Cost Efficiency:

• Motivation: to obtain economies of scale and resultant cost advantages.
• Example: an established manufacturer with production facilities in the North might look to save shipping costs and improve distribution efficiency in the South.
• Search for: companies with similar geographic footprint, service network, manufacturing/production, or operational methodologies.

Strategic Capability and Transformation:

• Motivation: to acquire crucial technology, intellectual property, or human capital.
• Example: a company aiming to expand its product range might acquire the IP of a smaller competitor with similar certifications and a proven track record.
• Search for: companies with similar compliance to certification or regulatory bodies.

Diversification and Risk Mitigation:

• Motivation: to diversify into a new or varied market sector in order to reduce over-reliance on a singular revenue stream.
• Example: a company offering a seasonal product might decide to diversify by introducing an established, counter-seasonal product line which caters to the same customer base, possibly using a similar sales channel.
• Search for: companies who sell a different product or service through a similar channel or to a similar group of customers.

Strengthening the Value Chain and Financial Leverage:

• Motivation: to acquire part of the production process in order to enhance quality control and profitability.
• Example: a company which produces raw material might expand its value chain to production of finished goods.
• Search for: companies that would use the seller’s product or service as part of a larger process.

Building a buyer pool is not just about listing potential purchasers, but understanding the intricate dynamics of why a company is being sold and why another entity would be interested in acquiring it. This understanding amplifies the success of the transaction, ensuring mutual growth and prosperity for both parties involved.