When you and your Board have decided to either sell the company, seek a licensing partner to further develop or commercialize the technology or pursue growth capital, one of the first things to consider is building a buyers, partners or investor list for your opportunity. For the sake of this discussion, although we will focus on developing a buyer’s list as part of an M&A sale process, the process for a partnering initiative or seeking investors is similar in most aspects. Potential buyers will fall into two categories and these types of acquirers have fundamentally different goals that can be read in our previously published article here.
In the process of identifying the right buyer for your business, it is important to take a thoughtful and considerate approach to developing the list of potential buyers if you wish to maximize the probability of a transaction, meeting your goals in a business sale and avoid night sweats over the deal you should not have transacted. I find the process of taking a thoughtful approach to a buyer’s list analogous to being a thoughtful leader and going beyond the “average”, commoditized leader. The thoughtful leader is differentiated and thinks often about the impact of their behavior, actions and leadership has on the people and environment around them. A thoughtful leader thinks about the impact of decisions before they make them.
Take a thoughtful leadership approach and develop that list you will need depending on what type of transaction you are looking to transact. A good financial advisor with deep domain knowledge in your sector and industry can assist you in compiling the initial list for you. Avoid developing a genericized list which anyone can assemble. Eliminate the noise. Rather, identify the select buyer universe and understand why certain buyers are preferred over others. Create this differentiated list and include those buyers beyond the obvious acquirers. Understand the comprehensive impact of these buyers on your business.
Things to consider when compiling the list of strategic buyers include:
- Strategic Rationale (why do they want to transact?)– A specific synergy analysis should be done for key buyers. Is the buyer operating in the same space as the seller with complementary products, research pipeline and a sales force in place? Would this acquisition be a simple tuck-in with minimal incremental dollars invested to get traction? Or does the acquisition give the buyer greater breadth and depth and become more transformational? Why does the acquisition make sense? What will the transaction accomplish?
- Ability to Pay (how do they intend to pay for a transaction?)– Judging the ability to pay often depends on whether or not the acquirer’s financials are public. Private acquirers are generally less attractive, and your financial advisor can help assess buyers by their previous purchasing behaviors and capital financial transactions in private markets.
- Track Record (have they completed an acquisition previously?) – The company’s track record of acquisitions is somewhat important to consider as it may indicate their future appetite for inorganic growth. Do they have experience in integrating businesses?
Things to consider when compiling a list of financial buyers, i.e., professional buyer universe such as private equity groups:
- Fund Size and Amount of Cash – Find out how much financial sponsors have raised in the current funds and how much remaining “dry powder” or bandwidth is left. Funds, at times, are insufficient to invest in your company. So, sponsors need to partner with a third party for additional capital. If the fund does not have the cash readily available, it significantly decreases the likelihood of a successful transaction.
- Typical Check Size – Funds often represent that they invest in a broad range of investments, both type and size. Rather than simply accepting their marketing pitch, it is important to find out what the actual amounts of their recent investments have been. Seek an advisor’s assistance in evaluating their past performance.
- Industry Focus & Track Record of Related Investments – Make sure the fund is invested in your space and has a well-established track record. If a fund has to familiarize itself with your market before investing, it greatly decreases the likelihood of a successful transaction.
- Relevant Portfolio Companies – It is good to find funds that already have investments in companies in the space (or related space). These funds will already be familiar with your space and may be looking for platform or tuck-in investments.
After the initial list is compiled, you should develop a specific strategy for approaching each buyer on the outreach. Customize your messaging to each buyer.
Once you have determined that it’s time to sell, you’ll need to be thoughtful in developing the list of buyers to approach. Understand why certain buyers are preferred over others. In my experience, I will spend at least 2-3 dedicated weeks with business owners on determining the ideal list and why each firm is on that list. It is not a numbers game. Seek quality. Be able to clearly articulate and differentiate the reasons why certain buyers are on the list being constructed. The buyer list is an evolving and dynamic document. General advisors that specialize in M&A transactions will use many resources to help companies and sellers prepare a buyer list. Advisors with deep domain expertise will go beyond the generic list and will provide value-added input to differentiate. Consider them as a trusted and knowledgeable resource in an effort to build that thoughtful database.
If you are looking to either explore opportunities for a sale of your company, partnering of your assets or wanting to find investors for growth, our firm is happy to assist you flush out your list and implications of a transaction for the business. Contact me at (858) 461-9490 or reply directly to firstname.lastname@example.org.
About the Author:
David H. Crean, Ph.D, MBA
Managing Director, Life Sciences & Healthcare
25+ Years of Experience
Objective Capital Partners is a leading investment banking advisory firm whose Principals have collectively engaged in more than 500 successful transactions serving the transaction needs of growth stage and mid-size companies. The executive team has a unique combination of investment banking, private equity, and business ownership experience that enables Objective Capital Partners to provide large enterprise caliber investment banking services to companies with annual revenues up to $500MM. Services include sale transactions, partnering/ licensing, equity and debt capital raises, valuation and comprehensive advisory services. The firm uses a proprietary process to work to achieve maximum company valuation, premium pricing, and high client satisfaction rates post-sale. The firm’s industry expertise is focused on 5 verticals including healthcare, life sciences, business services, technology, and consumer products. Additional information on Objective Capital Partners is available at www.objectivecp.com.
This article is provided for informational purposes only and does not constitute an offer, invitation or recommendation to buy, sell, subscribe for or issue any securities. Securities and investment banking services are offered through BA Securities, LLC Member FINRA, SIPC. Objective Capital Partners and BA Securities are separate and unaffiliated entities. While the information provided herein is believed to be accurate and reliable, Objective Capital Partners and BA Securities, LLC makes no representations or warranties, expressed or implied, as to the accuracy or completeness of such information. All information contained herein is preliminary, limited and subject to completion, correction or amendment. It should not be construed as investment, legal, or tax advice and may not be reproduced or distributed to any person.