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Aligning Buyer & Seller Objectives

M&A Strategy: Aligning the buyer type to your desired outcomes.

We often get questions from our clients regarding the types of buyers in today’s market and what attributes they look for in potential acquisitions. They also want to understand the implications of getting bought and what they should expect from one type of buyer vs another. Admittedly, it can get confusing with the different terms such as PE, VC, Family Office and Strategics.

As you consider selling your business, its important to consider your future goals and current business situation against the objectives of the different buyer categories; there needs to be alignment for all parties to win.

Here is my breakdown of the buyer types for private companies and the focus of each.

Firstly, there are some common factors across all potential buyers which drives the valuations and thus price – these were covered well in a recent post by @Chris Rolfe where he describes the key considerations that come into play when a buyer prepares an offer.

Private Equity (PE’s) firms are the first type of buyer and very active in this dynamic market.

A Private Equity (PE) organization is an investor that invests other people’s money for the purpose of generating a return on that capital. PE’s market their funds to investors with a defined purpose, projected returns they expect to achieve and within a specific timeframe (ie 7 years). A traditional PE firm will raise a fund with multiple Limited Partners (LPs), which may beendowments, institutions, pension funds, and/or high net worth individuals, who all contribute to the fund. This capital is then used to acquire a majority stake in a company and scale growth over a predetermined period of time.

PE firms are either looking for platforms where they can back a great management team to then grow the company organically and through acquisitions typically over a 5 to 7 year time horizon and then sell the company to a strategic buyer or larger PE firm. PE firms are also looking for tuck-ins to the existing platforms they already own. The common misconception is that PE firms will come in and cut your staff and make major changes. Normally this is not the case;the PE firms are looking to grow sales and EBITDA as fast as they can to build the business. Normally they look for situations to use their capital to ignite growth in successful businesses and keep the team, culture and infrastructure intact.

Considering a PE firm as a buyer is well aligned to companies that need serious capital to drive growth and can benefit from the financial discipline that a PE firm will bring to major decisions and also financial reporting. Remember that the pressure is on to generate a return within a specific timeframe and that pressure is passed down to the acquired leadership team.

The second category of buyers are the “Strategics”

Strategic buyers are companies that already operate in a similar or adjacent industry segment. They are interested in acquisitions to further their existing business or to diversify in an adjacent business where they have competencies. They are interested in acquiring:

  • Business IP and assets to supplement their current business (ie expand/ enrich their offering)

  • Customer portfolios to accelerate their growth and the underlying demand to soak up their capacity

  • New geographies to expand in new markets

  • Capacity to satisfy their own growth constraints

Strategic investors will be more interested (than PE’s) in merging the operations and assets of the new entity and less interested in the existing management team; their focus is on furthering their strategic vision, growth goals and achieving synergies.

The third category of buyer are Family Offices

A family office can take on many forms, but ultimately can be defined as an organization made up of a high net worth individual (single family office) or a pool of wealthy individuals (multi-family office) that deploys its own capital to make direct investments in private companies. Their key goal is to create generational wealth that can be passed down through the family.

The biggest difference between private equity and a family office is the source of capital, and this drives many other behavioral differences such as financial discipline, speed of change, and focus; a PE will be all about the financial performance where a Family Office will also care about purpose and the impact of key decisions related to social causes, the environment or the individuals running the company.

The other difference with a Family Office is the timeline of the investment which is longer than a PE; A Family Office typically targets a 10 - 12 year investment horizon and with that patience comes more creativity in techniques used to drive growth and profitability.

A Family Office and PE’s are similar in that they have a lot of interest in the quality of the leadership team and keeping it intact during the investment period. In addition, where a PE may insert a leader to join the acquisitions’ management team, a Family Office acts more like a Board member capable of “leaning in” and using their deep experience to solve problems, identify opportunities and implement best practices.

Acquisitions involving a Family Office are well aligned to companies with:

  • Aging owners that have good leadership teams that want to buy-out the owner but lack the capital.

  • Great growth potential but require capital and management experience to capture the next opportunity and establish Infrastructure to scale quickly.

Acquisition by a Family Office is not suited to companies where the owner wants a quick exit but has no succession plan in place.

The final take-away

Selling your business is one of the biggest decisions of your lifetime. Invest the time to really think through your short-term priorities and the medium-term outcomes. Finding the right type of buyer that aligns with your objectives and culture can make all the difference between success and years of pain.


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