5 Things to Consider When Developing a Buy Side Strategy
Updated: Jun 13, 2019
Is your company thinking about growth via acquisition?
If you are serious about dealmaking and view it as a focal point to growing your business, it would be wise to create a buy side strategy.
Rather than waiting for prospective companies to hit your desk from contacts within your network or an investment banker running an auction process, your business can take a more proactive approach by developing a buy side strategy. The goal is to be proactive and think through the details before taking action.
Time and time again, we see this approach lead to successful integrations and greater outcomes overall.
5 Things to Consider
Expect a time commitment: For CEOs already stretched thin, know that completing a deal will require investment of time and resources. While the early stages of introductions and exploration are not overly burdensome, the process becomes more intensive as it moves along. When a letter of intent is executed, the process intensifies as there may only be 45-60 days to complete all due diligence, legal work and sign documents. Be cognizant that, although you should be partnered with experienced advisors, there is still a significant commitment of time and resources piled on top of the day-to-day operations of the company. We find many clients are not tremendously experienced in completing a deal, so there is certainly going to be a learning curve for first-timers.
Define goals: Before determining what may be an appropriate acquisition target, look internally. What are you hoping to accomplish? Perhaps the aim is to expand to new geographies, add products and services or bolster your management team or personnel. The answer to this question helps set the scope.
Establish criteria: Only after goals are identified does it make sense to establish criteria for a target in terms of size, location, product/service offering and culture. Experienced advisors will help determine what are “nice-to-haves” and “must-haves” and will be careful not to be overly broad or too selective. Furthermore, consider how you may go about marketing yourselves and why a potential seller should be excited about a deal. It’s a competitive landscape, with far more buyers than sellers, and your business will need to stand out. What does your company excel at and what is the attraction for somebody to sell their company to you?
Assemble your internal team: Consider the deal from a personnel standpoint, and remember that the smaller the team, the better. It is ideal to have only one or two people heavily involved in the early stages, with the CEO or CFO leading the charge. Smaller teams are advantageous in that they are more likely to be completely aligned, and more importantly they are able to make decisions in a timely fashion.
External team: Many companies are not well versed in dealmaking, so it is critical to work with a strong team of external partners. A buy side M&A advisor can quarterback your process and walk with you through the stages of initial introductions, analysis, negotiations, and final deal closing. Experienced M&A attorneys will be crucial to the team, as they will be able to keep up with the hectic timeline and navigate asset purchase agreements, employment contracts, indemnification clauses, and related legal items prior to closing. Rounding out the team, it is helpful to have an accounting firm that can complete a quality of earnings report and conduct financial due diligence.
Begin to prepare
Buying another business is a great way to grow your own, but it is not something to be taken lightly. Preparation is key to ensure you are maximizing potential.
We are eager to guide organizations through the process and always happy to answer any questions.
Jason Kraynak is Vice President at Copper Run. He focuses on assisting families and privately held business clients in their growth through acquisitions and in meeting their liquidity objectives.