Ensure a Comprehensive Buyer's List Includes Non-Obvious Acquirers

When you and your Board have decided to sell the company, one of the first things to consider is building a buyers list for your business. This list will consist of corporations, investment firms and individuals to be approached during the M&A sale process. Potential buyers fall into two categories and these types of acquirers have fundamentally different goals. We previously wrote about the differences between strategic and financial acquirers that can be read here. The way they will approach your business in an M&A sale process can differ in many material ways. In the process of identifying, evaluating and selecting the right buyer for your business, you must look beyond the obvious if you wish to maximize success of the transaction, company valuation and sales price.

The Process of Creating the Buyer List

Start off by creating a buyer list composed of the obvious companies including immediate competitors the business faces every day and why or why not they will be "good" buyers. Business owners and entrepreneurs often exclude direct competitors from a buyer list for the obvious concern that the competitor will either use the information that the seller is for sale as a sales tool against them, better understand the customer base, hire away key employees or “fake” purchase interest only for reasons of gaining competitive intelligence and “kicking the tires” to better understand the business. Excluding direct competitors may or may not be an issue from the perspective of realizing full value in the sale process. Rarely does the obvious buyer turn out to be the actual buyer. Direct competitors may not be the desired buyer and lead to the best outcomes.

Additionally, identify companies with an ability to pay—and an interest in paying a premium price. Assessing the ability to pay in the private market space is difficult. This is where an experienced M&A advisor can help since they have access to proprietary databases or knowledge of the markets. The other area where an ability to pay is difficult to assess is if the company has a relationship with a private equity group. The company may appear small and unable to acquire, but the private equity group may have access to hundreds of millions of dollars. With respect to paying a premium, the rationale for doing so is several-fold and includes combinations of either economies of scale, cross-selling opportunities, unlocking underutilized assets, access to proprietary technology, increased market power, shoring up weaknesses in key business areas, synergies, geographical or other diversification, providing an opportunistic work environment for key talent, reach critical mass for an IPO or achieve post-IPO full value, or vertical integration.

Other Factors to Consider in Creating the Buyer List

It is important to understand all of the objectives/considerations of your business as a seller. Realizing the most money possible is an obvious goal, but is legacy important? What about business continuity, brand retention, and employee considerations? Acceptable acquisition structures and transaction time frames are also important considerations in constructing a buyer list. As a seller, do you want to exit as soon as is practical or does the CEO/ Management want to continue to lead the company after the transaction? In this situation, the business sale process may involve some type of earn-out or accepting shares of the buyer as consideration. Understanding the key differences between strategic and financial buyers can help you understand their decision-making processes. Clarifying what each type of buyer is seeking can help you decide which fits your situation best.

Final Thoughts

Do the homework upfront and determine beforehand an exhaustive list of potential buyers. The buyer list is an evolving and dynamic document. Advisors that specialize in M&A transactions will use many resources to help companies and sellers prepare a buyer list. These resources include proprietary in-house databases; existing relationships in the industry, private equity, and fund sectors; business networks and associations; and commercial company databases. While an M&A advisor has tremendous resources and many relationships at his/her disposal, they may never identify all potential buyers before engaging in the process. Once the executive summary teaser is in play and the sale is being marketed, potential buyer groups that are non-obvious may come out of the woodwork. Be open to the possibilities. 

If you would like guidance to build your list of potential acquirers beyond the obvious, please contact me at [email protected]. I’d be happy to engage you in dialogue and explore why certain buyers make sense. Good luck in your build and with achieving your objectives.

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?Disclosure

Objective Capital Partners is a leading investment banking advisory firm whose Principals have collectively engaged in more than 500 successful transactions serving the transaction needs of growth stage and mid-size companies. The executive team has a unique combination of investment banking, private equity, and business ownership experience that enables Objective Capital Partners to provide large enterprise caliber investment banking services to companies with annual revenues up to $500MM. Services include sale transactions, equity and debt capital raises and comprehensive advisory services. The firm uses a proprietary process to work to achieve maximum company valuation, premium pricing, and high client satisfaction rates post-sale. The firm’s industry expertise includes life sciences, business services, technology, healthcare services, biotech, and consumer products. Additional information on Objective Capital Partners is available at www.objectivecp.com.

This article is provided for informational purposes only and does not constitute an offer, invitation or recommendation to buy, sell, subscribe for or issue any securities. Securities and investment banking services are offered through BA Securities, LLC Member FINRA, SIPC. David H. Crean is a Registered Representative for BA Securities. Objective Capital Partners and BA Securities are separate and unaffiliated entities. While the information provided herein is believed to be accurate and reliable, Objective Capital Partners and BA Securities, LLC makes no representations or warranties, expressed or implied, as to the accuracy or completeness of such information. All information contained herein is preliminary, limited and subject to completion, correction or amendment. It should not be construed as investment, legal, or tax advice and may not be reproduced or distributed to any person.