How To Find The Right Acquisition Opportunities
Intro: If I've sent you to this page it's because you've contacted me to ask if I have a business that meets your particular requirements or you approached me to enquire if I can put you in touch with business owners who are looking to sell.
The short answer is ...no, I won't do that. But you might benefit from reading the article below and I explain how I can help you later.
Understand the motivations!
Which of the following describes you?
a) You are looking to steal a march on other buyers and get introductions to businesses before they go to market or
b) You want to compete with other buyers for businesses already on the market and you are deal sourcing for businesses that match your mandate.
If it's the former, then expect to pay for professional advice, and to pay in advance!
Yes, I know many people wanting to sell their business. But why on earth would I introduce them to you? Their interests would be best served by having a professional prepare the business for sale and market the opportunity to get multiple buyers.
From your point of view, getting to the business before anyone else does, and not having any competition, means you can get a better deal. But what incentive do I, or anybody else, have to help you in this way?
Oh, and before you offer me a cut of any deal, I've heard that before. People in the position to send you deals won't work on the "I'll pay you when the deal completes" kind of arrangement! Those don't work. You could be someone with unrealistic price expectations ...in which case you'll never complete on a deal and the introducer will never get payment.
If you want off-market deals, those are prime leads! They cost money. You need to engage someone to hunt those deals down for you. And pay well!
If it's the latter, ie. you want to compete with other buyers for businesses already on the market, read on ...
First, are you one of the £1 Charlies?
Unfortunately, most "buyers" and "investors" out there are not serious contenders.
They are either fresh out of a "Buy A Business For £1" course and think they can buy a quality business with little or no capital, or they have unrealistic expectations on price or they are tyre kickers, time wasters, just curious.
Sometimes they call themselves fancy names, like "search funds" or "London Capital & Private Equity Group". They do like to put words like "capital" and "private equity" in their company names.
But they are usually novices still finding their feet in M&A. They are highly likely to get cold feet and pull out of the transaction at some point. That's what newbies generally do. So smart sellers and their advisers try to avoid dealing with them in the first place.
The above "buyers" account for over 90% of the market. Most people posing as buyers are not serious candidates.
Are you different? Are you not one of them? Then you need to demonstrate this as described below!
Now for the main article....
The scattergun approach is not efficient
Have you been approaching people like me directly, or business brokers, M&A advisory firms etc., and describing what type of business you're interested in buying?
That's generally a waste of time! There are three reasons:
1. It marks you out as lazy! And they don't want to deal with lazy people.
I'm sure you're not lazy, but if you're someone who didn't go through the businesses for sale that they've got listed for sale publicly, they'll figure that you're too lazy to be a serious buyer.
Serious buyers tend to write to them quoting a specific reference number. For example, "Can I please have details for the business on your books with reference XYZ44520?"
No, brokers don't get excited that you're a "buyer"! In their experience, the chances of blind approaches like yours ending in a deal are close to zero.
That's why they'll either not bother replying to you or they'll send you a boilerplate reply saying they don't have anything that matches your requirements (even if they do have a perfect match!)
If they haven't been replying to your emails, you now know why.
2. It marks you out as tight.
Serious buyers tend to have someone working on their behalf - like a buy-side broker or corporate finance firm. They commission these firms to do their deal sourcing for them. This is particularly so when the target is a larger business, say one with £1m+ in turnover.
There may be a good reason why you don't have a professional making these enquiries on your behalf. Perhaps you like the personal touch. Perhaps you think you can do a better job. Or perhaps you're just tight / just don't want to risk spending the money on retainers.
Buying a business involves taking risk. If you are unwilling to risk a few grand on retaining a competent firm, that doesn't say much about your appetite for risk and about the likelihood of you having the guts to complete on a transaction when the time comes to take action.
This makes you not a great bet as far as the broker is concerned.
One more thing...
People in the industry, like business brokers, prefer to deal with others in the industry. They speak the same language. Dealing with unvetted "buyers" is frustrating. Deals with them have a much, much higher chance of not making it past the finish line ...which means the sell-side broker doesn't get his commission.
So even if you've found a business you'd like to enquire about, don't make the enquiry yourself. Sign up with a good broker, or an M&A adviser like myself, to make the approach on your behalf. You'll stand a much better chance.
3. It marks you out as naive. A broker who has 500 businesses on his books is not going to remember the details of all of them and be able to immediately tell you whether he has one matching your mandate or not!
And, no, most brokers won't go hunting through the list to find you a match! You should be providing them their reference number for the business you're interested in.
It's not any different with the higher end, transaction advisory firms even though they have a smaller number of (higher value) clients.
How it works at those firms is that the clients are split up among the directors / partners. Each director may be responsible for only 2-3 clients and he'll know only those clients' businesses intimately.
So even with those brokers it's not likely the direct approach will work well.
Use a professional to make the approach!
People in the industry react a lot differently when approached by a professional. They'll be willing to go and dig through the company's client list and see if they've got a client who's a good match.
Why is that?
- If the buyer has hired a professional, he would have paid a fee. That suggests he's not, like most buyers out there, simply a tyre kicker!
- Importantly, it's probably also evidence that he's not one of those "buy a business for £1" characters.
- It is far, far easier for an intermediary (broker, M&A house, whatever) to deal with another intermediary than with an end user. Did I mention that buyers coming in blind are considered a right pain by many brokers?
- Your adviser would have vetted you and asked questions and they'd know where you stand on some of the key issues that the broker wants to know before engaging with you.
- Intermediaries feel safer sharing information with other intermediaries. They won't give everything away but, prior to NDAs, they'd be willing to share more with your professional than they'd be willing to share with you. Do you know many brokers have clients on their books that they just won't tell you about? They will only share those details with another intermediary / professional.
The right way to find acquisition opportunities
- Be prepared. Know exactly what you want - sector, size etc. But also what percentage of a deal you can finance in cash, what type of multiples you're willing to pay etc.
- If you don't have a clear picture on the above - go get advice and form a clear picture on all the main questions first!
- Hire a professional to assist. Yes, they cost money. Yes, a good one will want to be paid in advance (with none of that "pay only on results" arrangement). But if you are serious about making an acquisition then a good professional will save you a ton of time, but more importantly he can reach deals that you can't!
- Get proof of liquidity! And be willing to show just how much cash you actually have to invest. Don't go out there telling intermediaries that you know a lot of high net worth individuals. Or that you have "access to funds". Or that funds "will be available for the right deal". All of those statements simply say that you're broke!
The people you're dealing with aren't impressed with claims about "access" to funds. They want to see proof of the liquid funds in your bank account. Claims like the above say you're a chancer and that you want to find a deal before you go scrambling around trying to raise the capital required.
Brokers don't want to deal with that type of aggro buyer!
Are you looking for a "no money down" deal?
Sorry, but the professionals generally don't want to deal with this kind of acquirer. In fact, when approaching professionals - whether a sell side broker to enquire about a client of theirs, or a buy side broker to ask if they'll act for you, or anyone else - you'll do well to make clear at the start that you're not looking for a "no money down" deal and that you've got fresh capital of your own to invest.
The "no money down" buyer is quite simply the worst kind of buyer. He likely has no funds and so dealing with him is almost guaranteed to end in disaster. He'll chop and change, dither and delay, go scrambling around trying to raise finance on the assets of the business etc. He's highly reliant on third parties for funding!
The chance of a deal getting to the finish line with someone like him is close to zero. It'll sap the broker's time and energy. The game is just not worth the candle.
Unfortunately, most buyers in the market today are people like this! They pretend to be "buyers" but they have no money to buy. They pose as funded but they are more interested in the seller's "motivations" for selling rather than details about the business itself i.e. they're looking for an angle - something they can offer the seller instead of cash.
No good intermediary wants to deal with an investor who has no money to invest.
You'd be surprised at how good some of these intermediaries have become at sussing who is actually an unfunded buyer. In fact, I provide business brokers various tips and advice on sniffing out and avoiding these unfunded buyers!
Want assistance with buying a business? Want to consult with someone who has been there, done it himself, and who has advised thousands of other buyers like you? Want to get savvy tips on finding the right business acquisition opportunity, getting the best price?
Then stop relying on free advice, demonstrate you're a serious buyer and book a paid consultation session with me!