By successfully uncovering passive sellers at rather reasonable valuations – while working cohesively with more traditional sourcing channels – proactive acquisition strategies can help mid-market businesses elevate their status to a more dominant role in their given industry.
When looking to acquire new companies, business owners can either approach listed companies or – with the development of proprietary deal flow – can target businesses that may or may not be currently on the market. This latter approach can offer many benefits over the more traditional competitive auction process, and is worth taking a closer look at.
Not everyone knows they’re ready to sell … until an offer comes
One of the benefits of targeting a listed company is that you know – for certain – that the business owner has the intention of selling. However, that doesn’t mean that all other (unlisted) companies are off the table. Many business owners are potential passive sellers, meaning while they might not actively auction their company today, they’d certainly entertain offers from serious buyers.
Find that perfect match
Opening up your potential acquisition pool (by developing an acquisition program) gives you the ability to hone in on a company that’s deemed the perfect fit, rather than settling on the best company out of what’s available.
Not only is that a benefit to you if and when you do acquire the company, but it’ll likely reduce the chances of the target company turning to an auction process: they too will see you as the perfect fit for their transition.
Being proactive gives you more control
In a traditional auction process, the vendor and agent have tremendous control over the entire process. However, that control shifts to the acquirer with a more proactive approach. By gaining more control over pace and process, you’ll be able to dedicate more time to due diligence as you work to develop a forging relationship with the vendor and management.
A profound insight offered through acquisition programs
Through an acquisition program, you can gain access to certain pieces of information that aren’t publicly available. Such information can help you determine the consolidators and sellers of a given industry.
This process can also provide valuable insight on the future extent of an industry roll-up strategy. With a more reactive approach you may work with the target universe for 5 years. That time period can often be truncated to a year – with a proactive approach – which will help you to decide whether to continue to pursue acquisitions and secure financing or if you should shift strategies.
Deciding on proactive acquisition along will not dictate success
Propriety acquisition opportunities offer a litany of benefits for mid-market businesses, including targeting opportunities at better valuations (while also minimizing risk associated with an auction process). However, to ensure success, you must do more than just say you’re committing to this strategy.
Building your own acquisition program requires planning, resources, and skills, to ensure that the process is designed with your goals – and market realizations – in mind. As the adage goes, plans help prevent eventual failure. However, once properly developed and set into action, you’ll find that pursuing a proactive acquisition strategy may catapult your mid-market business into an industry juggernaut.