How To Find The Right Acquisition Opportunities
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.
The short answer is no (that's not how it works). But you would benefit from reading the article below and I explain how I can help you.
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 next 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.
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 just don't want to spend the money!
If you're trying to do your own deal sourcing it suggests that either you're too tight to pay for professional services or you're new to this and want to keep the costs down as much as possible.
Either way, you're not a great bet as far as the broker is concerned. You're probably not worth the time. Some small brokers may engage with you. None of the better brokers will bother!
People in the industry, like business brokers, prefer to deal with others in the industry. They speak the same language. Dealing with end users is frustrating. The end user may have a lot of experience running businesses but if they don't have experience buying businesses, dealing with them is a pain.
Now the above may not describe you, but the broker will form that opinion about you anyway if you approach them directly!
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. They may have a smaller number of clients, high value client businesses they're selling, but the person you contact will not know all the clients on the books.
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 that 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 90% of 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 when you're selling a business, buyers coming in blind are considered a right pain by many brokers?
- Professionals can answer the questions that brokers have. 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.
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". They aren't impressed with all those claims. Lines like that say you're a chancer and that you want to find a deal before you go scrambling around trying to raise the dosh. 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 buyer. 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. The chances 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, 90% of buyers in the market 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.
And those are frustrating deals because most of them fail to reach the finish line (for one reason or another).
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 out who is actually an unfunded buyer (and discounting those buyers). In fact, I provide business brokers various advanced tips and advice on filtering out 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!