<!–[endif]–>We had a conversation with a potential client recently that followed a common pattern. They want us to help them sell their company and specifically they wanted us to find a strategic buyer that will pay a premium for their company. This company is small and doesn’t have the earnings history to attract a broad set of financial buyers.
Although it seems straight forward, finding a strategic buyer for a small company is very difficult. <!–[if !supportEmptyParas]–>The seller has a compelling technology and to get top dollar for their company they want us to find a buyer who would realize significant synergies with the addition of this technology. <!–[endif]–>
This method is effective in larger deals (above $75M). The universe of buyers is pretty small and the conversation naturally starts with the buying CEO. Also the seller generally knows all of the players that are likely buyers in his market and the buyer will most likely know the seller once disclosed.
For smaller companies though, selling requires a much bigger search. First, the universe of buyers is very large and there is a very high likelihood that the buyer and seller don’t know each other. Woodbridge has found that in 75% of their deals the seller didn’t know the buyer before the transaction. The other challenge is finding the right person within the buying organization. It is often not the CEO since small deals get delegated down to divisions and often to a person that may or may not have a “Corporate Development” or “Acquisitions” title.
A further challenge is timing. In a large deal the strategic nature of the acquisition will cause a potential buyer to stop and consider if this is unplanned opportunity is worth pursuing. Small deals are much easier to let pass since it is unlikely to be a company altering event for the buyer.
So, when you consider that the buying company is hard to find, the person within that buying company is hard to find and that the timing is often not right, the ‘needle in a haystack’ description is not far off. It’s no wonder that in the lower middle market we use a broad marketing system. We have to in order to increase the odds for our sellers.
In this case we advised the client to continue to grow the company until they are bigger and can attract more attention with their earnings history. This will allow us to market the firm broadly to both financial and strategic buyers.
Want to learn more? I’ve organized and categorized my blog posts into a free online guide on how to sell a business: www.sellbusinessguide.com