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How Buyers View Business Investment Opportunities

By Generational Equity

12/07/2016

A few weeks ago Axial, an organization dedicated to helping investors meet business owners needing capital, produced a “Buy-Side M&A Planning Worksheet.” As always, since the vast majority of our readers are business owners, I thought I would once again provide you with inside intel on what buyers are looking for when they analyze businesses. It is an interesting insight into how folks on the buy-side of the M&A world operate.

If you are too busy to download the entire document, I have provided a few key segments. Essentially Axial asks a series of questions that walk a buyer through vital areas to consider as they approach an investment opportunity. Some of the crucial ones for you to be aware of as a seller include:

  • What are your strategic goals in this acquisition?
    • Increase market share
    • Diversify product lines
    • Diversify customer base
    • Acquire talent
  • What are key elements you want to avoid when acquiring?
    • Turnaround (restructuring) underway or needed
    • Customer concentration
    • Negative margins
  • Integration preference?
    • Integrate the acquisition into your current business
    • Run the acquisition as an independent company
  • What timeline do you have in mind for your next acquisition?
    • Within 6 months
    • Within a year
    • Beyond a year
  • Who is going to manage key segments of due diligence for your team?
    • Legal diligence
    • Financial diligence
    • Technical/engineering diligence
    • Sales/marketing diligence
    • HR diligence
  • Who will lead integration planning and execution?
  • If you are listed above, who is going to cover for your normal activities?

Why the Details Matter

OK, so several takeaways come to me as I review this list.

First, as you can see, as a seller you need to be ready to document why your company is an appropriate target for a specific buyer. You have to make your case quickly and succinctly in your Confidential Business Profile that you will be sending to targets.

But before you do so, you need to create a buyer list that includes targets that will be interested in the features of your business that match a checklist like the one above. Simply put, you have to do your research and create a compelling sell-side checklist (look closely at the first four questions asked above) regarding what areas of your company would be attractive and then target specific buyers using that checklist or, better yet, hire an M&A advisory firm to do so for you.

Secondly, your sell-side checklist should also contain answers to the last three questions relating to key personnel you will draw upon to help you successfully navigate the close of your transaction. Now for many of you that do not hire an M&A advisor, most of the individuals listed in the final three questions will most likely be you and your accountant. If that is true of your situation, you need to be very, very careful and look at the last question listed above closely: How are you going to maintain the ongoing operation of the business while spending anywhere up to 1,000 hours over 9-14 months focusing on a successful sale of the company?

The reality is unless you have a very, very strong management team that you can literally delegate the operations of the company to for up to a year, you will have a hard time closing your transaction without an M&A firm working with you.

Fortunately, the Generational Group is here to offer advice and guidance based on our collective decades of deal making experience. We understand just how challenging closing a deal can be because we have closed well over 500. In fact, we have closed more deals for lower middle-market companies (valued below $100 million) over the past 8 years than any other M&A advisory firm.

Odds are good, if your company meets our revenue and profit criterion, we can also help you. To learn more about us, please use the following links. And if you do have to find a buyer without professional help, be sure to create a solid sell-side checklist.

By Carl Doerksen, Director of Corporate Development at Generational Equity.

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