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Acquisition advice: Find your perfect suitor

December 6, 2011

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Schoolboys eyeing the most popular girl in class, job candidates competing for interviews, employees aiming for elusive promotions –

 

Google has acquired 57 companies during the past nine months. (Joerg Sarbach – AP) they all grapple with the same questions.

How do I get them to notice me? How do I stand out among the crowd?

The same goes for small business owners hoping to sell their firms.

Now of course, the notion of being gobbled up by another company, often a competitor, won’t appeal to all small business owners. But consider that, in just the past day, Yahoo purchased Interlock for $270 million, GrafTech bought Fiber Materials for $14 million and, hours later, World Energy Solutions bought GSE Consulting for more than $8 million. Moreover, Google recently revealed that in the past nine months the search engine giant has smashed records by spending roughly $1.4 billion in gobbling up 57 smaller companies.

The figures are enough to leave many an entrepreneur wondering how his or her company can become number 58. But where do you start? How does your tiny firm catch the attention of big companies, how do you identify potential suitors, and if you get that far, how do you close the deal?

The challenges are many, but we’ve sought out some advice. Below, three M&A experts share tips and suggestions for entrepreneurs hoping to find potential suitors and sign high-dollar acquisition deals.

Stever Robbins, author, consultant and serial entrepreneur

• Seek a strategic fit: “Look around for potential suitors and find a way to make your startup sound like something that would compliment or complete their strategy. Intuit was a teeny tiny company that acquired the people who made TaxCut in the mid-‘90s, and now they have a fabulous story to tell customers about how they went from helping small businesses manage their checkbooks to now also helping do their taxes. That story may make the company more valuable than actually having the product because people see Intuit as a whole different company.”

• Market your customers’ credibility: “Remember, people value certain credibility indicators like your customer list. For instance, there was a company called Zefer in the Boston area back in 1999 that went on a gigantic acquisition spree buying small Web design firms. But they bought them not for any assets other than their customer list, because if one of their acquired companies had worked on a project for the Wall Street Journal, they can now say, ‘We’re Zefer and our past clients include The Wall Street Journal’ – and that alone can be valuable.”

• Tout your superstar employees: “These days, when social media is all the rage, if some of your employees are establishing themselves as real movers and shakers, someone may buy your company just to get them. A great example is Microsoft, which acquired Groove Networks several years ago so they could get Ray Ozzie and make him their chief technical officer at Microsoft. Of course, they integrated Groove into Microsoft Office, but from what I understand, they really didn’t care about Groove. They cared about getting Ray Ozzie.”

Mark Levine, managing director, Core-Capital Partners

• Start with the companies you know: “We encourage startups to start by looking at companies with whom they already have strategic relationships, investments or general distribution deals. Those companies often wind up becoming the eventual acquirers, because they have worked with you, they know your product, they know the dynamics of the product, they know what the margins are, they know how it’s made, and most importantly, their sales people are already familiar with what you’re selling.”

• Land customers your suitors would want: “One of the best ways to get attention is to land some your partners’ customers or new customers would be strategic for companies that might acquire you in the future. Generally, potential buyers are going to be the industry leaders, and if you can get your product in customers’ doors, their other suppliers will take notice.”

• Know your industry’s press: “Press relations are always vital, and you should pay close attention to trade press. If you’re in the oil-gas industry, you want to understand exactly how the trade press works in oil-gas, and if you’re in the computer industry, you want to understand exactly how that press works. Basically, you need to know the press that your strategic partners, competitors and potential acquirers are reading.”

Michael McFadden, co-CEO of Lazard Middle Market

• Enter the market when growth forecasts are high: “Ideally, you want to go to market at a time when your growth for the foreseeable future is as strong or stronger than it’s been in the past, even if that means not waiting for next year’s higher revenues. One mistake many companies make is waiting for next year’s growth before entering the market. But once they achieve it, growth rates for the following year may be diminished, which can result in a lower multiple being paid for the business.”

• Don’t wait until senior management is ready to retire: “Sometimes companies will wait until senior management is ready to retire before going to market, but most buyers are looking for senior management to stay with the business. You want to go to market when you have a management team that’s energized and ready to stay in place for at least the next three to five years.”

• Create competition: “Don’t engage in exclusive conversations with one buyer. For example, you may think Company X is the best buyer for your business and so you only engage with them. But often, the buyer you think is best doesn’t value your company as high as others would. Don’t give away exclusivity too early; keep seeking competition as long as you can.”

By  |  12:51 PM ET, 11/02/2011

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