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What makes your company attractive to an acquirer?

Updated: Mar 27, 2020

Whenever I meet company owners considering the sale of their company I often hear the statement ‘we know who our buyer will be’. It is a statement said with such certainty (having spent almost 30 years working with company owners), that it concerns me every time I hear it!

The obvious buyer

Of course we all know who our main competitors are, especially those that might be large enough to acquire the companies we have worked so hard to build. It is often these competitors that come into focus when considering a sale.

Expanding the horizon

However, this perspective is extremely narrow. Company owners often have a restricted view or field of vision when it comes to this subject and I find that with experience my job becomes more and more about helping owners to step back from this perspective and to look along the wider horizon. To the left and the right of the company you think you will sell to, are significant numbers of other very interesting buyers, who given the opportunity would like to acquire your company. If you do not even give them the opportunity how will they become aware that you are looking for a buyer, and how will you ever know what these other buyers might have been willing to pay.

The law of attraction and the 'buyer-led' deal

It is all to do with attraction. Buyers are attracted to companies for many different reasons. Companies need to grow and to stay a few steps ahead of their competitors. As they reach a certain size many companies begin to develop an acquisitions strategy. They have enjoyed good organic growth, through recruiting excellent sales people, establishing distributors, agents or branches, however at some point they will reach the optimum size whereby the next step is to grow the company through making several strategic acquisitions. Your company might well be the company they choose to approach as part of their strategy. In this scenario, the acquisition of your company could be described as a ‘buyer-led’ acquisition. You did not approach them, they approached you.

However just as you become part of their ‘buy-side’ strategy, i.e. they find you attractive for various reasons and from their perspective it makes good sense to approach you, unfortunately it also leads to a ‘narrow view' of who your company might be attractive to. You begin to focus on one buyer, because of their own, rather than your strategy. Of course to attract you, they focus on what initially sounds like a good price!

The law of attraction and the 'Sell-side' deal

Let’s look at this from the sell-side. As a seller, you should also approach the sale of your company strategically. Never allow someone else’s strategy to determine who you sell to (no matter what sort of numbers they are talking about). If you are interested in selling it is important to understand what makes you attractive to a buyer, but it is equally important to understand that you will be attractive to different buyers for different reasons. The elements that makes you attractive to different buyers can be translated as 'value'. In monetary terms, the value one is prepared to pay will be different from what another is prepared to pay.

Why understanding attraction will move you towards looking at multiple acquirers

The one buyer that approached you might have an overwhelming and specific reason for their approach. However others will have their reasons too. A sell-side strategy means that you need to think about why you might be attractive to different buyers. Think about all of the reasons. Then allow those reasons to determine who you might approach For example:

You might be attractive to one buyer because the acquisition makes it possible for them to extend their own customer base. In fact, your 30 years in the market place might mean that the only way they can access certain customers is through buying your company. Maybe they have tried to persuade customers to leave you. However, maybe it is because you have developed such a strong relationship with those customers that the only way to gain entry to these customers is via an acquisition. This has value.

Maybe you provide access to a new geography. Instead of merely looking at your domestic competitors (the narrow view) in terms of who would be interested in acquiring you, why not extend the search to other countries and give those companies that are not currently operating in your home territory the opportunity to access a new geography.

Perhaps your company represents the opportunity for some buyers to diversify into high value and adjacent sectors or products. These companies supply different products and services to similar customers to those you already serve. In fact they have had requests for the products and services that you provide from their customers in the past. By acquiring you they can now extend their products or services and begin selling these to their larger customer base through their sales force, agents and distributors thereby seriously enhancing the performance of your company. This has value.

Maybe you have certain certifications that allow you to trade in certain sectors, such as aerospace, defense, environment, or other critical industries etc. These can be highly attractive to a buyer, because of the cost and time associated with gaining such certifications. Maybe they need to have these certifications in place due to changes in their own market where they have been slow to respond. They can gain instant access through acquiring a company that has these in place. Perhaps the acquisition is based on gaining access to technology, or manufacturing processes, enhancing production capacity, gaining access to new sectors, changes in legislation, or to allow them to access to highly lucrative contracts that guarantee a certain level of predictable income. Maybe the skill of your workforce is important to the buyer.

Control your own sale strategy

Without understanding what makes you attractive to different buyers and by restricting your sale process to only include your nearest competitor in the domestic market, you will lose the upper-hand in the negotiations. However by looking carefully at every ‘attraction’ element you can associate to your company you are in a stronger position to determine a) who you will approach b) avoid merely being part of someone else's strategy, and c) remain in control. Someone controls every negotiation and it's better that it is you.

Ultimately, sell-side means taking control of your own destiny as well as your company’s. In the final analysis it is better for you to control the sale process and thereby identify and approach many buyers rather than to be approached by one buyer, that has their own predetermined agenda (and with a fixed price in mind).

Final thoughts

Don’t ignore an individual approach. At the same time don’t disregard other potential buyers. Plan to have a ‘choice’ of strategically motivated and financially strong buyers. Look along the horizon rather than restrict your vision. Your will find that there are a lot more opportunities than you might initially think. Plan to research the domestic and international market place thoroughly based on what you think might make you attractive to different types of buyers.

Simon Gregory - sell-side strategist

#notes #typing #meeting

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