Often Overlooked by Sellers, This Most Important Task

From the beginning of your process, you should be preparing a list of potential buyers. This is your target list and the names on it are your targets. This is a critically important step in the process. Without the appropriate audience, you likely won’t be selling your company or will be selling it for far less than you’d like.

Unfortunately, there is no silver bullet method of identifying your potential buyers. It involves a lot of research and a lot of hard work. Google, AI, and your phone will be your best friends. We use the analogy of pulling on threads and not stopping until there are no more loose threads.

In one of our case studies, the owner of a pet services business first looked to identify possible strategic buyers started her list with the public companies in the pet services space. She then looked in her trade journals for large pet services providers in her and neighboring regions and added those to her list. She then added the largest local providers of related goods and services (e.g., pet stores, kennel and pet daycare providers). For potential Financial Buyers, she started her list with private equity firms that had invested in the space. Private equity firms generally issue press releases announcing their investments and acquisitions, so her Google search yielded those names. She networked with local business leaders, including business bankers and trade support organizations

Identify Strategic Targets. Again, these are targets that may have an interest in acquiring your company for strategic purposes. Strategically, this could mean:

·      They are already in your business and want to expand their footprint geographically.

·      They are already in your business but believe they could learn valuable things from your company that they could apply across their business.

·      They are already in your business and want to buy you to eliminate a competitor and facilitate the growth of their business.

·      They are in a highly related business and want to enter into your business.

·      They are in an unrelated business but have an interest in diversifying by buying your business.

For smaller companies, “strategics” are the most likely type of buyer. “Financials” generally have institutional investors behind them, must deploy a lot of investment money to generate meaningful returns, and therefore aren’t interested in small companies.

To what individual do you direct your outreach? For targeted Strategic Buyers, if they have a “corporate development officer,” that’s your target That’s code for acquisitions. Most large companies have that type of an officer. In the absence of that officer, we suggest targeting the CEO. Don’t approach the head of marketing, sales, business development, or human resources. We have never had much success approaching the chief financial officer either. And certainly don’t approach any sub-executive employee.

And how do you get the contact information for these targeted individuals at these target companies? Well, it takes work and, while not always possible, many times it is. Try the following, which we regularly use in our sell-side efforts:

·      Look them up on LinkedIn and send them a LinkedIn message, making sure to drop the names of any mutual friends (i.e., 1st degree contacts of yours that are 1st degree contacts of theirs). In one of our case studies, the message was something along the lines of “I own a thriving pet services business and am exploring our strategic alternatives. If you’ll connect with me, that should provide your email, and I will send along some information for your review. Thanks!”

·      If you have a 1st degree contact at LinkedIn that knows them, reach out to your contact and ask if they would share your target’s email address with you or introduce you to the target.

·      Call the company and ask for the administrative assistant of your target. Ask them if you can either have the target’s email or, if not, if you can send your outreach to the assistant to have it forwarded to the target.

·      Do an Internet search for an email address (you’ll be surprised how often they are available).

·      Subscribe to Pitchbook (www.pitchbook.com) or ZoomInfo (www.zoominfo.com). They are very good resources for finding potential buyers. Subscriptions to them are in the tens of thousands of dollars, although they very well may be worth it for such an important transaction in your life.

If you are not familiar with or have not joined LinkedIn (www.linkedin.com), it is well worth it for you to do that. It costs nothing for basic service and, as described above, can greatly assist your efforts to contact potential buyers.

Identify Financial Targets. For smaller companies, as described, this could be a very limited universe. But, given the phenomenal amount of capital available in this sector, it merits some investigation. Just searching the Internet, and talking to people in your industry, you should be able to discover if there has been financial investor interest in your industry. Financial investors tend to be private equity firms, family offices (i.e., investment management offices handling the financial needs of one or more wealthy families), hedge funds, and other investors that purchase companies primarily as a means of earning a financial return. And those same sources should be able to generally describe the investment criteria of those interested investors.

Unlike Strategic Buyers, where it is often quite difficult to procure the email address of the correct person at the targeted investor, Financial Buyers make themselves much more available to people with investment opportunities. Try to identify and contact the partner-level person that handles investments in your industry.

GROW and SELL Advisors, wholly-owned by Traversi & Co., LLC, is a premier sell-side M&A advisory firm – a boutique investment bank – serving the lower middle market.  Visit us here.

For a short video clip on this topic, click here.