One aspect that separates M&A advisors from business brokers is the approach used to identify and target buyer candidates. The typical business brokerage approach is largely advertising based. They place a description of the seller’s business on several websites (BizBuySell and others) and then simply await inquiries. Business listing websites are effective for “main street” businesses (restaurants and auto repair shops) where the buyers are individuals and ad-hoc partnerships. However, in the lower-middle market, specialized corporate buyers aren’t shopping on these sites. Most strategic buyers don’t even realize they’re buyers, yet.
We’ve had great success targeting and selling companies to strategic buyers and industry-focused private equity groups.
Early in my career when I worked at WebEx (www.webex.com) in business development, we would conduct a quarterly exercise to identify potential strategic partners. In this half-day exercise, we would brainstorm a list of all possible market segments where we expected to find partnership value, and then identify the top players in each space. That simple exercise directed our strategic actions and objectives for the quarter. Employing a similar approach for my sell-side M&A clients, I’ve found that strategic targeting is the most effective way to find the right buyer.
Where are you most likely to find a strategic buyer for your company?
I like to start by brainstorming the low hanging fruit. This is an exercise where the seller client and the M&A advisor benefit from close collaboration. Some market segments will be obvious, such as customers, partners (resellers, VARs, OEMs), competitors, vendors, and distributors. Other fruitful segments are less obvious and often overlooked. Exit Strategies has a systematic approach to expanding this universe of target business segments.
For each of my sale engagements, I develop and maintain a list of all strategic buyer candidates by market segment, and I share that list with my client. This exercise requires deep research to generate a comprehensive list of companies, followed by more exploration to identify the right individuals at these companies. Exit Strategies has several databases that help with this. Subsequent outreach campaigns include phone calls, email, LinkedIn, and good old snail mail.
It’s a ton of work, but the results of a strategic targeting process are well worth the considerable effort. Of course, our client’s identity is protected until the buyer has been properly screened and an NDA has been signed.