During early discussions with clients surrounding their exit strategy and a possible sale, a key question that comes up all the time (other than how much is the company worth!), is “who do you think would buy my business?”
In some (but actually rather rare) circumstances, the client may already be speaking to a prospective purchaser and may even be considering an offer on the table. However, in most cases, the client will not be readily aware of who would likely buy their business or have even given it much thought before speaking to an adviser.
Below are the top five steps that should be adopted by an agent or adviser tasked with searching and approaching potential buyers for their clients’ businesses. In this example, we are simply focussing on trade buyers rather than financial investors and private equity, which is worthy of a separate article.
Step 1 – Getting to know you as their client
Whilst this seems obvious, it can be an overlooked step. The key from the outset should be to really take the time to know and understand as much as they can about your business. What sector and subsectors are you operating in? Where does your business fit into the wider supply chain? What end market(s) do you sell to? Who are your suppliers? Who is your direct/indirect competition? Etc. This helps set the stage to inform more detailed searching later on.
Step 2 – Searching for deals to find buyers and buyer categories are the best way to start
This ‘top-down’ approach starts by identifying who is active in the market and will help establish buyer categories as well as generating, hopefully, a long list of acquisitive companies. Generally, your adviser should be looking to conduct your search over a 5-10 year historical period, which is something our analysts and research tools allow us to do. The results help paint a picture as to what the merger and acquisition (M&A) climate is like as well as help focus and draw out key rationale on why each deal occurred. This rationale may also give further industry information: size and trends, competitors, unsuccessful bidders, other industry deals, and so on, which is extremely valuable information to help further focus the target list. The process doesn’t stop there, though as further filtering, review and analysis is conducted to ensure that the most active acquirers match the client’s target description and industry.
Step 3 – Building a company list using a bottom-up approach is a useful second step
To supplement the above, the next step is to identify companies that sit within these buyer categories but who have not acquired a business to date. There are multiple sources available to help search for this information such as market reports, intelligence databases, trade and industry associations and internal acquisitive databases.
This is probably the most common method of compiling company names and is often adopted by many advisers and agents, however we generally find that not enough time goes into asking key questions and being able to demonstrate why the particular target should be considered a buyer other than ‘they just happen to operate in the same market sector as the client’. A number of further questions should be asked including: will the appetite of the acquirer be enough? Could they afford our client? Would our client be OK with exiting to that buyer? What would the combined entity look like? How would the buyer benefit from acquiring our client’s business etc.? All these questions are relevant to help filter and identify the most suitable candidates from this list.
Step 4 – Presenting the research in a logical, informative way
With all that work going into identifying potential buyers, the information should be presented in a clear and concise way so that it is easily manageable for you as the client to clearly understanding the methodology adopted and rationale for why each buyer is on the list. A simple but effective approach is for the adviser to present using a standardised template that splits the list into buyer groups based on the categories identified in step 2. These categories could simply be an ‘A’ or ‘B’ target list, or they might wish to categorise them by least sensitive to most sensitive. The choice is a personal one depending on who is preparing the list and your own preference, but the key is to ensure all relevant information is present.
Step 5 – Finding and contacting potential buyers
From the outset, always establish who the most appropriate person is to contact in each business. If the potential buyer is an owner-managed business with revenues <£20m, then the owner is likely to be the key decision-maker. Conversely, if the business is larger, it’s likely the FD or MD will be the key decision-maker or there may be a corporate development department with an acquisitions director or corporate development director to speak to. Understanding this as well as adopting the correct approach strategy can have a significant impact on maximising the chance of getting details of the opportunity in front of the right person at the right time.
Our team will never adopt a mass marketing campaign when marketing our clients business for sale and will always conduct a thorough buyer profiling exercise before going to market. Identifying the right types of buyer is usually a time-intensive process, however one that should pay dividends in the long run if managed correctly.
This post was written by Ross Bennett, at Price Bailey. If you would like more information on this article, please contact Ross using the form below.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.