A wise advisor once said, “Obvious buyers are obvious”. This truism serves as a recommendation to sellers to seek beyond the obvious buyers when constructing a list of potential acquirers
Obvious buyers typically identified include a mix of direct competitors and the large players that dominate the sector. Many investment banks often provide sellers with a list of the 25 or so obvious buyers, resulting in the seller feeling a false sense of comfort because all the names of the potential acquirers that they are familiar with are on the list. And, while many of these companies may represent high-fit potential acquirers, the seller is missing out on engaging with a large number of less obvious, high-fit potential acquirers. These acquirers have a strong strategic rationale to acquire and a resulting high willingness to pay a premium purchase price.
The Obvious Acquirers
Start off by creating a buyer list composed of the obvious companies including immediate competitors the business faces every day. Include details on why or why not you consider them to be "good" buyers.
Business owners and entrepreneurs often exclude direct competitors from a buyer list for the obvious concern that the competitor will use the information that the business is for sale as a sales tool against them. The competitor could “fake” purchase interest only for reasons of gaining competitive intelligence to better understand the company operations, customer base, or to hire away key employees. Excluding direct competitors may or may not be an issue from the perspective of realizing full value in the sale process. Rarely does the obvious buyer turn out to be the actual buyer. Direct competitors may not be a desired buyer and may not lead to the best outcomes.
Less Obvious, High Context Acquirers
After identifying a list of obvious acquirers, identify potential acquirers with a contextual connection to your company which could represent a compelling rationale for the acquirer to make an acquisition. These contextual connections may include the seller and acquirer operating in adjacent segments, sharing similar customer bases, selling complementary product/services, or representing merged capability or technology advantages. Identifying and vetting these contextual connections can be very time intensive. An experienced M&A advisor leverages their knowledge of your industry and experience with active acquirers to rapidly develop a rich portfolio of less obvious acquirers who have the potential to justify paying a premium purchase price.
Private Equity-based Strategic Acquirers
Private equity (PE) acquirer’s are obvious acquirers and any robust sale process includes engaging a large number of PE acquirers who have made previous investment in the seller’s industry sector. While PE firms actively seek acquisition opportunities for their portfolio companies, this process is less than perfect. An smart sale process will identify high-fit potential acquirers that appear to be too small to complete the desired acquisition based on traditional metrics, but have significant PE ownership. Their PE ownership provides an otherwise “too small” company with the capital and mandate to to aggressively make acquisitions. Due to their smaller size, these less obvious acquirers are often overlooked in a simple buyer screen. Identifying them require a combination of industry knowledge and research to identify. Applying the effort and intelligence to include them in a portfolio of potential acquirers can be well worth the effort as they represent well capitalized acquires with a strong strategic rationale to acquire.
Building a robust list of potential acquirers is a critical step when considering to sell your company as it can directly impact the success of the entire sale process. Advisors who specialize in M&A transactions in your industry will use many resources to help companies and sellers prepare a buyer list. These resources include proprietary in-house databases; existing relationships with active acquirers in the industry, private equity relationships, business networks, and market intelligence databases.
The investment of time and expertise to develop a robust portfolio of potential acquirers can significantly increase the competitive nature of the sale process. It can also result in the achievement of a premium purchase price that reflects the company’s full future potential, and provide the seller with a wider range of options to achieve their specific objectives. Be open to the possibilities.
If you would like guidance to build your list of potential acquirers beyond the obvious, please contact us at firstname.lastname@example.org or email@example.com. We’d be happy to engage you in dialogue and explore why certain buyers make sense.