Business owners thinking about transitioning out of their companies must consider factors that help identify and target buyers of choice. Certainly, active acquirers that consistently demonstrate an ability to pay handsome prices, close deals rapidly and continuously create shareholder value via acquisitions is a winning combination.
Largest Transactions Closed
Buyer’s Strategic Fit with the Client
Strategic buyers are called “strategic” for a reason. They are typically interested in companies with capabilities that are difficult to build via internal development. A strong strategic fit is the starting point for buyer selection; however, strategic fit does not necessarily mean “they do what we do.” Sometimes the best buyer for a company may be the one most eager to enter a new segment via acquisition precisely because market entry via internal development is too risky, costly or slow. Also subsumed under fit is culture – will the buyer respect the culture that has made the company an attractive acquisition candidate?
The better an owner (and investment banker) can identify and gain the attention of strong-fit companies and articulate the strategic rationale for a sale – from the buyer’s perspective – the better the chances of attracting the interest of those buyers.
Buyer’s Appetite for Acquisitions in our Client’s Segment
A company that is not in “buy mode” is not an attractive buyer even if the fit is compelling. An otherwise active acquirer may have deal fatigue at certain times. One’s banker should have a general sense of a potential buyer’s appetite for particular types of companies and domains at any given time.
Similarly, one’s banker should have a database of buyers and be able to share which companies have a reputation for paying top dollar for their acquisitions, versus which ones are bottom feeders that will fight you for every dime. And, of course, deal structure, terms and conditions for any given price also matter.
Buyers will request a financial forecast to help determine a selling company’s value. Beyond establishing a competitive market for the sale of a company (e.g., via a thoughtful auction process) and successfully approaching strong-fit potential buyers, nothing can increase one’s likelihood of getting a good price than being able to provide and defend a credible forecast. In the absence of a credible forecast, the purchase price will not be maximized in favor of the seller.
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