In Episode 4 of The Selling Successfully Podcast, Portage Founder and Partner Jim Friesen and Portage VP, Thomas Bevilacqua, get together to talk all about buyers – who they are, what drives them and how a proper profiling process can help sellers find their perfect match.
Here are 5 key takeaways for business owners thinking about or ready to sell.
- Connections are key.
“Are there even buyers that exist?” The answer to this commonly fielded question is, “Yes!” The buyer universe is quite diverse and comes in all different forms, shapes and sizes. A well-connected M&A firm will not only be able to find or attract these buyers but also identify those who are well-matched to the seller’s objectives.
Portage uses a phased-approach and draws on its long-standing professional relationships to garner the right leads.
Phase 1: Database driven
Portage taps into its own internal proprietary database which houses thousands of pre-qualified acquirers and buyers. This is akin to mining for gold and is a major benefit of working with a reputable M&A firm!
Phase 2: List building and research
Depending on the type of transaction, the team will dig into what players exist in that particular space, niche or industry.
Phase 3: Broaden the network
This involves connecting with other professionals such as accountants, lawyers, bankers and other M&A firms to tap into their extensive client lists to see if they have a candidate interested in entering the deal flow.
Phase 4: The Cornerstone International Alliance check-in
We are part of the Cornerstone International Alliance, a global network of thirty M&A firms similar to Portage and focused on the lower middle market. This powerful partnership gives us access to a number of potential buyers worldwide.
It’s also important to note good quality buyers are always searching for opportunities. They find us! Currently, Portage has one buyer reaching out virtually every single business day.
- Buyers fall into two buckets.
Generally speaking, there are two main categories of buyers: strategic and financial.
Knowing the two types of M&A buyers is important in understanding the dynamics of mergers and acquisitions and their potential impact. Strategic buyers are typically operating companies seeking to expand their market share, gain access to new technologies, or enhance their competitive position through synergies and integration. They bring industry-specific knowledge and expertise, aiming to create long-term value through a combined entity.
On the other hand, financial buyers, such as private equity firms, family offices and venture capital firms, focus primarily on generating returns on investment. They typically acquire companies with the intent to improve operational efficiency, restructure, and ultimately sell for a profit.
Understanding the differences between these buyer types helps stakeholders, including sellers and investors, tailor their strategies, negotiate deals, and evaluate potential outcomes based on the respective goals, motivations, and value creation approaches of each buyer category.
- Research reveals the best buyer.
Regardless of where the buyer comes from, we are committed to doing our due diligence with each one. We talk to everyone who reaches out to get an understanding of their motivation and risk appetite and conduct what we like to call “Capability Interviews.”
These include personal, lifestyle and business reviews to ensure the potential buyer is suited to the business and can manage it long-term. This is especially important for sellers who are looking to leave a legacy or pass down the business.
Here are the five criteria we use to identify buyers as a good fit:
- Integrity | Shared core values between the buyer and seller contribute to more successful deals.
- Responsiveness | When a buyer is interested, they will be quick to respond.
- Deal experience | A buyer invested in process, due diligence and with the ability to adapt and remain flexible for the betterment of both parties increases confidence that a deal will close.
- Growth strategy | A deal that fits very strategically within a buyer’s portfolio is more likely to succeed when compared to a one-off or stepping-stone transaction.
- Post-acquisition alignment | Buyers and sellers with high compatibility will be able to work together once the deal is said and done and enjoy a smooth transition.
4. Aspire to acquire
The current recessionary environment is causing buyers to rethink growth strategy, favouring acquisitions over organic expansion. In times of economic downturn, businesses face various challenges such as reduced consumer spending, tightening credit markets, and increased uncertainty. These conditions make it more difficult and risky to pursue organic growth initiatives, as they require significant investments in research and development, marketing, and infrastructure.
Instead, buyers are turning to acquisitions as a viable alternative. Acquiring existing companies allows buyers to quickly gain market share, access new customer segments, diversify their product/service offerings, and leverage synergies to achieve cost efficiencies. Moreover, acquiring distressed or undervalued assets during a recession can provide buyers with attractive deals and potential long-term value appreciation as the economy recovers. By favoring acquisitions over organic expansion, buyers can navigate the challenges of the recessionary environment more effectively, positioning themselves for growth and resilience in the post-recession period.
5. Perspective is everything
Despite representing the seller, we also provide guidance to buyers for a 360 degree understanding of how to best package a deal that will be a win/win for all parties involved.
Considering the transaction from the buyer’s perspective is just good business sense as it allows us to obtain a comprehensive view of the deal. Understanding the buyer’s motivations, strategic goals, and financial capabilities helps us tailor our approach and present the deal in a compelling manner and ensure we can get to the finish line in an expedited manner.
By putting ourselves in the buyer’s shoes, we can anticipate and address potential concerns, highlight the synergies and benefits of the transaction, and structure the deal in a way that aligns with the buyer’s objectives. For companies that are new to the M&A world, this is especially important as there tends to be a lot more support required. We ensure that buyers have the right deal team in place and are checking all of the boxes that need checking in order for the transaction to be approved.
This buyer-centric approach not only increases the chances of a successful deal but also fosters trust and collaboration between the M&A firm and the buyer, leading to a smoother due diligence process, negotiation, and ultimately a mutually beneficial transaction.
Sellers can rest assured the buyer pool remains plentiful. The type of buyer may change depending on the market but opportunities abound. Finding an M&A firm that offers strategic support both sell-side and buy-side is your best bet when it comes to creating and executing a deal that meets or exceeds expectations for both parties.
To learn more listen to the full episode, Where Do Buyers Come From?, here https://portagemaadvisory.com/podcast-page/ .