Thursday, 28 June 2012

I Have a Buyer for your Business

My previous post was about niche businesses and those owner-entrepreneurs wondering if there could be more than one buyer for their business.  There are other sectors that include many competitors.  Just within the IT sector I am thinking of Cisco resellers, Microsoft SharePoint or Dynamics shops, IT solutions companies focused on virtualization and cloud strategies.
Some M&A advisors will approach companies in these sectors and say “I have several buyers for your business.  In fact I know the CEO of ABC Co. and the CEO of XYZ Co., they are good friends of mine and they are keen to buy your business”.  Some business brokers will say they have 100’s of buyers ready to go BUT the likelihood that these are really strategic and actually able to acquire is very small.
So, how do you separate fact from fiction and secondly, how important are buyer relationships? 
Recently closed transactions in the space and client references from those deals (see and are verifiable evidence of capability and up-to-date market knowledge.
However, they should not be the only factor in choosing an investment banker to advise in the sale of a business.  Having done deals in a sector renders the mandate more efficient for the advisor by: (i) knowing up-to-date acquisition terms and pricing and (ii) the appetite and ability of potential buyers, but securing a number of desirable offers is ultimately what the seller is looking for.  To achieve that you need an advisor who will work tirelessly on your behalf, not just forward the first offer received and pressure the seller to take it.  You need a company champion who will spend the time, leave no stone unturned and who will fight for your best interest.  Having done deals in the sector may lead to short-cutting the process believing that certain companies are active buyers and others are not buyers at all. Such assumptions will limit the potential that could otherwise be achieved.
As I have noted several times, the best buyer is not likely to be a direct competitor (who could not pay a strong price if they were just interested in acquiring the customer base) but a “platform buyer”.  A platform buyer will be interested in the business for one of three reasons, its customers, its personnel, or its technology. Platform buyers are good buyers because they typically leave the existing assets in tact (brands, people) and usually bring a growth opportunity that allows them to pay a good price and provides the company sold with new opportunities.
So should buyer relationships drive your choice in investment bankers?  An advisor knowing a CEO who wants to buy your business (even if for argument’s sake that company is Cisco or Oracle – pick any leader in its space) does not guarantee a good price or even a good offer.  Only by going to market with an experienced advisor who (i) understands the business and has presented the opportunity strategically, (ii) conducts a thorough process and, (iii) has the time and interest to put your company first, can you secure the best price for your company.

Derek van der Plaat, CFA has worked in private market M&A for more than 20 years and is a Managing Director with Veracap Corporate Finance in Toronto.

1 comment:

  1. Technology - Build or Buy is a predicament for most companies, but is especially serious for technology companies. Obtaining technology through purchase can be an outstanding development technique. Time to market, time frame, first moving service benefits can have a large effect on the greatest achievements of a item. First one to set up their item as the "standard" is the big winner.

    Technology Acquisition