Often when I meet with a business owner to talk about how we go about selling a business, I get a question like this: “Where do you find buyers?” That’s a legitimate question, since owners want to have reasonable assurance that I know what I’m doing, and if I couldn’t answer that question they really ought to look elsewhere. So what’s my answer? You find them where they live.
First of all, we’re not looking for A buyer we’re looking for Many buyers. The old saying in our profession, is “One buyer is no buyer”, since things can go wrong with any single buyer, and the deal you could almost taste goes up in smoke. Multiple buyers create competitive pressure to give you your highest price and/or best deal, and they also give you backup buyers in case your chosen partner tries to “re-trade” the deal or simply walks away. Multiple buyers give you choices and recourse.
OK, but where do those buyers come from? It works like this:
Financial buyers: private equity groups, small business investment companies, business development companies, family offices, etc. We don’t really need to look very hard. They are constantly reaching out to us via mailings, emails, deal announcements, phone calls, personal visits, private meetings at conferences, lunch meetings, coffee meetings, beverages, gifts and promotions, just so they get a chance to invest in our clients’ companies. That helps us keep them top of mind, and our familiarity with their deals as well as what they like and don’t like helps us hit the mark more closely with those who take all the time and trouble to keep us informed. Nevertheless, we don’t let any of that influence us when we’re working for a seller client to whom we owe our loyalty. We actually take the time and effort to research the 3,000 or so entities that might be buyers and we line up your company’s characteristics with 1) their stated investment criteria, 2) their current portfolio holdings, 3) their past portfolio holdings, and 4) the relevant experience of their principals in your industry. I employ an almost full-time research associate to tell me everything I need to know about these prospective investors, and I pay for the industry-specific data bases and on-line research tools that allow her to find everything I need to know. Her name’s Jenny and she’s the best.
Strategic buyers: privately held and publicly traded companies in your industry or an associated industry. This is a harder lift, even in an industry where I have a lot of experience. Strategic buyers live in their offices at corporate headquarters. These buyers typically don’t have anywhere near the outreach and networking programs that financial buyers have. Financial buyers know they have to hustle to get deal opportunities, but the CEO of Big Behemoth Widget Company has other things on his mind and he figures the deals will find him because after all, doesn’t everybody want to sell to Big Behemoth? Additionally, strategic buyers don’t do a lot of advertising about internal re-organizations that may put someone new in charge of acquisitions this year. This is where research really pays off. We pay for the research tools that allow us to identify strategic buyers of any minimum or maximum size range, within any industry, and also to identify the key executives and get their contact information. Jenny uses those data bases and subscriptions to industry publications to get us an initial list of strategic buyers. For some industries we keep an ongoing tracking list of who’s bought whom, and we subscribe to various publications that tell us what deals got done this week. But how do we assure ourselves of a good fit for any buyer target with our client’s company? Once again, Jenny does the heavy lifting and researches outside data bases as well as each company’s web site to determine whether it really looks like a fit. When the process is done, we’ve got a pretty good target list for client review. The final list will incorporate any changes our client requests for any reason.
Individual buyers: individual buyers are sometimes the best buyers for smaller companies. If that’s the case for your small business we’ll make that recommendation. Those buyers come from two sources: 1) individual buyers who have reached out to us to indicate their interest in buying a certain type or size of business, and 2) advertising. Individual buyers live online. Advertising via online business buying and selling web sites, and places like the Wall Street Journal online provide most individual buyers. Honestly, although individual buyers are best for some clients, they are not my favorites. They often are long on dreams but short on capital, so it takes a lot of work to sort through them just to find out if they’re qualified. Additionally, since they may be using much of their net worth to buy a business, they often are very emotional and may not be totally rational actors. There is a great deal of hand holding involved when selling to individual buyers, and Jenny says I don’t pay her enough to do that job! Still, there are many well qualified and rational individual business buyers who know what they are doing, and those are the ones we really want for our clients. We just have to take a pragmatic approach and quickly sort out the dreamers who want some of our time from the real buyers who deserve to have most of our time.
That’s the long and short of it. We don’t let our always imperfect ‘knowledge’ get in the way of the solid research we should always use when representing a seller. The old information we had about industry players last year can be completely out of date this year, so up to date research is key. We work hard to get a good set of current, qualified buyers so that our clients will have options on who to choose and recourse if the chosen buyer fails in any way. This is fundamental blocking and tackling for us. If you’d like us to be on your business sale team, contact us via our web form or give our ACT professionals a call at 866-744-5422.