Rob Starr, Head of M&A at Shaw & Co, shares some tips on how to find the right buyers to takeover your business when it's time to exit.
It’s no secret but most sales/acquisitions in the SME sector happen by accident. Well, not quite by accident, but by way of an opportunistic conversation or introduction that leads to an eventual deal. Little wonder, then, that a large number of these attempted sales end in failure; usually because no real effort was put into finding the right business to sell to in the first place!
If you are definitely going down the trade / private equity sale route - rather than a Management Buyout (MBO) or Employee Ownership Trust (EOT) – then here are the key avenues for finding a trade or private equity buyer:
Opportunities may come to you in the form of a direct approach from a corporate finance house or broker brandishing a sale mandate for a business that could be a perfect fit with yours. To improve the chances of receiving that call you need to be sharing your marketing collateral with the advisors, but note that it will take a lot of calls to cover the entire advisor market.
It is always worth looking into your networks, supplier base, or thinking about competitors that you have recently come up against. It is likely that businesses within your sphere of influence could align with your criteria.
If you are serious about selling, you can explore other networks to widen the search. Approaching a corporate finance house to leverage their existing networks with other business owners, investment houses and the funding community can expediate the search process.
You should be able to build up a reasonably comprehensive picture of your potential buyers with some desktop research. For example, any business worth selling to is going to have a great website and probably a bustling social media presence. We are also very lucky that in the UK – thanks to disclosure requirements – resources such as Companies House are both freely available and a very useful source of information.
Any search is never really completed, businesses will move in and out of criteria over the months or years and a strong pipeline of opportunities will be required to make sure that you meet your M&A objectives. Lists will need to be built and maintained and continually updated, with the aim of the game being to build up an accurate map of the target market.
…and what to do when you find the right buyers…
Now you already know your likely buyers; it’s time to get their attention. In our blog “5 essentials to include your business exit plan” we talked about the need to think like a buyer by viewing your business a little like one of your products – from the customer’s perspective. Now it’s time to take your new product (your company) to market. How will you present to and engage buyers to win their confidence and bag your biggest ever ‘order’?
During the sale process it is important that you raise the industry profile of your company so that awareness is heightened and appetites whetted, but prospective buyers will still need to be convinced. Preparing your information memorandum [see our blog 5 things to do in your business before you exit] will therefore be crucial in providing both the basic information required and a compelling narrative to take that interest to the next step. Given its confidential nature, your information memorandum should only be given to pre-qualified potential buyers upon their signing a non-disclosure agreement (NDA).
As soon as you have identified the right buyers, your next step is to approach them – either directly or through your advisers. Clearly, you want to maximise value so it’s important to sell the opportunity not just the company, for example, by pointing out the synergy gains and strategic benefits that a buyer could realise through acquiring your company. You will also need to thoroughly prepare and rehearse your management presentation and be ready to deal with any questions, objections or clarifications.
Torchlight's owners asked us to help them develop their exit strategy. And when the time was right to sell, they asked us to help us find a new owner for their successful business.
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