M&A: Identifying Potential Buyers in a Sell-Side Transaction
From the beginning of your process, you and your transaction advisor (i.e., investment banker) 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. Fortunately, good sell side advisors are experts at this. We at Traversi & Co. are experts in identifying the appropriate potential buyers. We often invest 100 to 200 hours into developing our target list for a single sell-side transaction.
Identify Strategic Targets. 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; or
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, have to deploy a lot of investment money to generate meaningful returns, and therefore aren’t interested in small companies.
To what individual will you or your transaction advisory be directing your outreach? If the target Buyer has 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 target the CEO. We 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 we certainly don’t approach any sub-executive employee.
And how do you get the contact information for these targeted individuals at these target companies? Again, this is what investment bankers like Traversi & Company’s transaction advisory group specialize in. We provide access to 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. Your investment banker will know the universe of financial buys and their acquisition criteria. 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.
Traversi & Company is a premier sell-side M&A advisory firm - a boutique investment bank - serving the lower middle market. Visit us here.
