Not finding the right company to acquire is the top challenge for middle market companies seeking to grow through mergers and acquisitions. According to Capstone’s survey of middle market executives, 28% noted lack of suitable companies as the strongest reason for not considering acquisitions as a tool for growth.
Finding the right company to acquire is critical to the success of a deal, especially for strategic acquirers who plan to hold onto the newly acquired business long-term.
The lack of targets may be because most leaders are only focusing on for-sale companies. Many wrongly assume that if an owner is not actively seeking a buyer, a there is no chance for a deal. This is simply not the case. Once you begin to consider not-for-sale acquisitions, the universe of options expands.
Pursuing not for-sale acquisitions allows you to take charge of your acquisition strategy and seek out the best companies to acquire rather than accepting whatever opportunity happens to come your way.
For many I realize the idea of pursuing not-for-sale deals can be intimidating, and many assume that if an owner is not actively selling their company that there is no chance for acquisition. This is simply not true. While searching for and approaching companies that aren’t seeking buyers requires a different approach, and more effort, than reacting to whatever happens to be for sale, there are some tricks to approaching these owners.
Finding an Owner’s “Hot Buttons”
One of these best practices is to find the owner’s “hot buttons” to determine what the right equation will be for them to consider selling. A “hot button” is any issue an owner would insist on addressing if they were to sell the company. Price might be one such “hot button” but it’s unlikely to be the only one. The owner may love his or her work, in which holding a position after the acquisition would be a priority. There may be a succession issue if the owner has family members in the company they want to take care of. The owner could have longstanding ties to the community—or may even be the biggest employer in town—and would want to ensure the business stays in the area.
Being informed about these “hot button” issues, and handling them sensitively, opens up the whole field of so-called “not-for-sale” companies. Now, as you develop your acquisition strategy, you have far more choices, and much better chance of finding the company that truly matches your over-riding strategic goal.
Because approaching “not-for-sale” owners takes great skill, it often it makes sense to hire a third party expert who has experience in this work and is not perceived as any kind of competitive threat by the owner. Your acquisition advisor can also help you tease out the precise equation that would prompt the owner to sell.