Four Questions to Ask When Researching Potential Buyers

An exit strategy may have been the last thing on your mind when you launched your business. But it shouldn’t have been. In fact, a carefully planned exit should be an integral part of your overall business strategy and will help to support your capitalization efforts.

Just as you researched your competition and marketplace, it pays to do a bit of research on companies that may be potential candidates for purchasing your business down the road.

Begin your research early in the life of your business rather than waiting until you are already looking to get out. Acquisition data is easily obtainable on some of the largest companies due to public filings and media coverage, but it may take a bit more digging to come up with the acquisition history and data on smaller, local businesses. This is another way your professional network can come in handy.

As you do your exit research, here are four questions to ask yourself about a company you believe could be in position for acquiring your business some day:

1. Is the company financially healthy? It may sound obvious, but this should be the first qualifier. This sort of information is readily available for large companies, but can take a bit of research and business intuition for smaller, local companies. If a company has had some financial difficulties or is rumored to be over-extending, scratch it from your list.

2. How closely does your business fit the company’s rationale? Some companies focus on acquiring businesses that allow them to diversify, while others are hoping to further penetrate their current market. This is an important question to ask when considering a potential buyer. A company may have a great deal in common with your business, but if the company has always diversified when making past acquisitions and is not in the habit of purchasing businesses like its own, there is no sense in adding them to your list of potential buyers.

3. Does the company have a defined acquisition strategy? Once you have identified a potential company, learn how frequently they acquire other businesses. A legitimate prospect is one that acquires other companies on a regular basis, preferably as part of an overall business strategy.

4. What is the typical acquired company size? As you review the history of a company, research the size of the businesses it typically acquires. How does its usual targeted size for acquisitions match with your company’s projected size? Look for other metrics as well and compare to your company before determining if a potential buyer is a good fit.

Taking a company’s acquisition profile and turning it into an actual business opportunity is a critical step in your exit strategy, but it’s important to keep in mind that investors make money on exits. Conducting the research necessary to create a buy-profile of potential acquirers will also convey to investors and potential buyers alike,  that an exit is your ultimate goal.

A side benefit is that your exit strategy can provide some additional framework to your day-to-day operations, shaping how you run your business so that you meet your exit strategy goals. Your investors will expect no less.

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Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.
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