The Benefits of an M&A Adviser
You, the business owner, are a risk taker that is accustomed to getting things done onRead Further
Strategic buyers have consistently been our best business buyers since 2010, closing more deals than all of the other types of buyers combined. There are several reasons why strategic investors outperform the rest.
Strategic buyers tend to be companies or individuals that are operating in the same industry as your company. They can be a competitor, customer or simply another player in the same vertical. They choose to acquire other companies for reasons entirely different than that of other types of business buyers.
They may be looking to grow organically but are bound by the constraints of time and logistics. For example, they might be looking to move into a new market but instead of setting up operations from scratch, they can simply acquire an existing company in the same industry to hit the ground running.
Strategic buyers generally don’t look to sell the companies that they acquire for parts or flip them. They want to fully integrate the business they acquire with their existing business to achieve synergy. Thus they would only pursue the acquisition of companies that they know are capable of being integrated with their operations. These established companies usually don’t need financing and are able to cut the check without delay when closing the deal.
One of our advisor teams is busy onboarding a new business that’s for sale. The team asked for a list of competitors and were provided with names of six leading companies in that industry. The team reached out to these strategic investors and have secured three potential buyers before the business was even listed for sale.
We represent a sign manufacturer looking to sell their business. Our advisory team contacted three of the biggest sign manufacturers in the US. All three are interested in acquiring the company our team is currently involved in negotiations with all of the prospective buyers.
Often referred to as family offices, these private wealth management firms have generational wealth that they’re looking to invest in order to grow inherited assets. Over the past decade, family groups have outpaced private equity as the most active type of business buyer.
Family offices are able to quickly respond to opportunities in the market as they’re not hindered by cumbersome decision-making structures. In recent years, family groups have been helmed by the highly educated and business savvy third-generation wealth that prefers a more hands-on approach to their investments.
These investors will typically focus on one industry such as Oil and Gas, Technology, Construction or Healthcare. They are long term investors that look to acquire companies that can become a part of their portfolio. They are not interested in flipping companies that they acquire.
Due to the considerable capital at their disposal, family groups usually don’t need to raise financing and can immediately cut a check for a deal. They may often require the company’s owner to stay on and continue to run the business under the new ownership.
We’re currently working with a family group based out of Houston that’s looking to expand their investments in the Oil and Gas industry owing to the considerable growth potential that still exists.
One of our pending multi-million dollar deals is with a family group. In the past two years, almost 80% of our successful transactions have been with strategic and family investors.
A private equity group operates with a pool of money that it uses to buy companies. These are more commercial entities than private even though the name would suggest otherwise. They’re primarily looking to flip companies they acquire to generate a return for their investors.
Private equity groups were among the leading business buyers until 2008 but were eclipsed by family groups after 2010, largely due to the latter’s frustrations with their private equity returns and relationships.
Their strategy usually involves putting down as little money upfront as possible while using credit to finance the rest of the deal. Private equity groups will often retain the business owners but provide oversight to increase profits through a variety of measures.
They tend to structure deals that involve folding companies with revenues of $500K – $15M into portfolios built around a larger business that has revenues of $50-$60 million. The larger businesses are then re-sold in order to generate a lucrative return.
They tend to perform a lot of due diligence that may prolong the deal timeframe. We’ve signed a significant number of Letters of Intent with private equity buyers over the past two years but only a few have actually materialized into successful deals.
These are high net worth individuals (HNWIs) with dreams of becoming a business owner that act alone. They usually have inherited generational wealth or may have done very well for themselves in other industries. It’s not uncommon as well for ex-analysts from the private equity industry to go out and acquire businesses once they leave their jobs.
They will act alone because they’re already skilled in picking out businesses that would be a good purchase. Think about it. An analyst’s entire job at a private equity firm is to conduct research on businesses that they should acquire.
These investors already know what companies they want to buy and how to perform the due diligence. They tend to prefer companies in the service industry, such as those offering plumbing or HVAC services, since there’s good cash flow with minimal hard assets. They will usually opt for an SBA loan to finance the deal.
If you’ve never sold a business before, you might be confused about finding the right buyer for your business. Each of these types of business buyers have much more experience executing transactions than the typical business owner. Using a business broker helps to level the playing field when you are trying to negotiate a deal or push the process forward.
A good business broker will also be your trusted advisor keeping you informed and knowledgeable about the current status of the deal and what to expect in the next steps.
We had one buyer make an offer straight to our client, who then called us highly excited about the offer they received. The offer had our client financing the entire purchase. As we analyzed the offer with our client they realized that they would owe money at closing.
We then stepped in, helped the buyer find bank financing and are closing in on a deal.
Seasoned professional, Mike Miller has spent 25 years as a major executive with two Fortune 500 Companies - Armco Steel, Cooper Industries & British multinational conglomerate BTR. He was responsible for global operations. He has owned and operated over 150 business transactions both on the sell-side and buy-side, knowing the in's and out's involved with closing. Mike has been Officer in many professional organizations including past President of the Texas Association of Business Brokers.
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