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Shopping The Company
© Premier Sales, Inc. Shopping the Company is not an event it's a measured and methodical process. It requires much preparation, action and follow-through. Ideally, it should never absolutely end until the deal closes, however, the process may be put in abeyance if "stand still" or "no shop" provisions in a Letter of Intent (or Term Letter or Letter of Interest) are executed. The Goal is to find the unique set of buyers that will pay the highest price, structured to benefit the seller's after tax situation, and who has the best chance of financing and closing the transaction. The financing issue, alone, must be closely evaluated. Because a prospective buyer offers a premium price does not mean they can finance and close the transaction. Some buyers buy with their own cash, some leverage transactions with senior and junior financing (e.g., mezzanine lenders), some require sellers to carry some financing, and some companies cannot realistically be financed with asset based lenders due to their lack of assets. In these cases, cash flow lenders may be used, however, they often impose more restrictive conditions, covenants, terms and higher effective interest rates. Beware, it is critical to look at all sides of the financing issue, and the likelihood of success, before committing to a particular buyer. The result of a targeted, well conceived, proactive marketing effort should be a price which exceeds the company's "stand-alone" value. Therefore, it is critical to prepare a full scale and systematic Marketing Plan, customized to maximize the Seller's objectives. These objectives must be discussed, at length, to ascertain the Sellers financial goals, his (or her) desire to retire or to continue working with the new buyer or in other endeavors. A detailed marketing plan requires extensive research, experience, imagination and judgment. It should:
Shopping the company may comprise a few or all of the following methods : a) National/International proactive direct mail campaign to likely qualified candidates, e.g., privately held, public companies, private equity groups, other strategic-synergistic buyers, mailings may comprise 20 letters or, literally, thousands of letters. This often proves to be the most successful marketing method. The issue of maintaining Confidentiality must be carefully managed when engaging in broad, expansive marketing plans. b) National/International print advertising-select strategic industry journals. c) National/International print advertising-merger and acquisition periodicals/journals. d) National/International print advertising-select business and investment journals. e) National letter/fax campaign to national-select Merger and Acquisition Intermediaries. f) Contract work with international research firm. g) Marketing to strategic, proprietary database of buyers. h) Attend Industry Conferences, Trade Shows and Seminars, Contact appropriate targets. i) Research Trade Associations and Research Industry Directories. j) Numerous subscription "Online Internet Databases" identify Buyers and provide places to advertise a company's salability. k) Several "Online Internet" subscription products provide accurate financial and background information on "closed transactions" specifying the nature of historical "closed" public company acquisitions of other private and/or public companies. l) Professional Networks and Associations, e.g., attorneys, accountants, bankers, financial planners provide access and conduits to buyers. m) There are other non-disclosed "proprietary" methods of marketing companies. STRATEGIC ACQUISITIONS - SYNERGY Specifically, the marketing effort should focus on buyers who may capitalize on the unique strategic or complementary characteristics of the selling company. The perceived combination of synergies, and their accretive benefits, must be clearly identified. To identify the synergistic benefits, an Intermediary must be knowledgeable of the intricate underlying aspects of the selling company and understand "the market" it serves. A full evaluation of the company and its industry should be performed with the objective of assessing the buyer niches and markets in which the likeliest buyers compete and the types of prospective acquirers that could be expected to bid. This includes the estimated depth of each niche, the number and strength in this marketplace, growth prospects, economic, competitive and financial conditions, and finally, which prospective buyers could benefit most from an acquisition. Acquiring synergistic benefits offers the least risk and greatest prospect for value enhancement to the buying company. These acquisitions may engender some of the following strategic benefits : a) Acquire greater market-share b) Acquire expertise, unique personnel, better management team c) Acquire new customer base which are prospective customers of the company's existing products/services d) Acquire similar (yet new) customer base which are prospective customers of the company's existing products/services e) Acquire new products/services to sell to the existing customer base f) Acquire new facilities, with room for growth (excess capacity) which may take production pressure off of the exiting facility g) Acquire high tech expertise and/or equipment h) Acquire new, strategic geographic locale which may enhance the company's presence in a different part of the region/country i) Acquire new, strategic geographic locale which may provide for greater, competitive distribution and marketing vantage point j) Acquire trade secrets and/or hard to duplicate, valuable "proprietary information" k) Acquire superior systems, i.e., marketing, computer, sales, efficiency, etc. l) Acquire competitive companies, thereby eliminating competitors and mitigating future price wars m) Acquire valuable intellectual property n) Acquire valuable assets and/or companies and keep competitor from quickly acquiring competitive advantage o) Acquire a new channel of distribution p) Acquire a new and better source of supply q) Acquire a time to market advantage r) Acquire a greater buying power and reduce (percentage) cost of goods/services, due to larger market share and ability to make larger purchases s) Acquire your manufacturer or supplier or dealer or distributor or wholesaler or retailer (forward or backward - vertical integration) and lessen your costs and/or capture greater earnings/profits t) Acquire related companies which may allow the Owner to eliminate or reduce certain general and administrative expenses/costs u) Acquire companies which would usually handle out-sourced operational tasks/responsibilities and reduce costs and expenses v) Other synergies may be realized by strategic acquisitions
Beware, numerous purported strategic-synergistic acquisitions fail. In fact, according to most industry surveys, at least half of the strategic acquisitions do not achieve the synergies and ultimate financial expectations. Example - Quaker Oats bought Snapple in 1994 for approximately $1.7 Billion and ultimately sold Snapple in 1999 for about $300 Million. This acquisition failed because of Quaker's financial, marketing and strategic miscalculations. Some are successful - General Electric Capital has successfully acquired and integrated hundreds of companies during the past five years. BUYERS Every company faces a unique universe of prospective buyers. Experience has shown that many companies with Earnings as low as $500,000 can be attractive to many of the following types of buyers as a "stand-alone" or "add-on" investment. Generally, however, the greater the earnings, the greater the probability the company will appear on the following buyers' acquisition "radar screens". Public Companies - These companies may pay with stock and/or cash. Multiple variations of structure. Often they are the highest paying buyer. The Internet is a great vehicle for researching acquirer backgrounds. Often we can ascertain how they have structured and value acquisitions from analyzing SEC Documents. Furthermore, there are excellent resources which can quickly identify every public company that has acquired other public or private companies within a price range of $1 to $100 Million Dollars. Private Companies - Thousands in the USA, ranging from one person operations to billion dollar corporations. Sometimes more flexible in structure and quicker to perform than Public Companies. Numerous Directories and resources identify candidates by revenue, SIC codes, industry, geography and many other criteria. Private Equity Groups (aka Private Investor Groups or Buyout Groups) - Local to international. Funds sourced from institutional money or private money. A lot of institutional money currently seeks experienced PEG's to invest their money. Very flexible in structure, retain stock, buy back stock, puts and calls, warrants, earnouts, cash, etc. They can move fairly quickly. Over 1,000 PEG's, on any given day, are actively seeking acquisitions. All kinds with different priorities and acquisition criteria. Sponsors of "Poof IPO's" - Example- Jonathan Ladecky, whiz kid promoter, finds 5 to 10 companies in the same industry that agree to sell their businesses for cash and stock from the proceeds of an IPO that has yet to occur. The IPO and the merger of the founding companies occur simultaneously. Using its stock as currency, the new company continues the acquisition binge in the hope of eventually creating a national power-house that will dominate the industry. These companies are often called "poof companies" because of the way they seem to materialize out of thin air. US Office Products Co., USA Floral Products, Inc., Consolidation Capital and UniCapital Corp. are rollups to his credit. Steve Harter is another entrepreneur, similar to Ladecky, who has orchestrated several successful rollup- IPO's. He is responsible for the US Delivery rollup, Coach USA (Motor Coach) , Metals USA, Comfort USA (A/C and Heating), Physicians Resource Group (ophthalmology practices) Home USA (mobile home retailers) and other transactions. These can be very risky with significant management challenges and other problems. Companies with an agenda to go public - desire to reach a marketplace threshold of revenue and/or earnings, aggressive. Hundreds exist at any given time. Consolidators - there are hundreds of consolidators, both small and large, acquiring noncyclical, fragmented businesses nationwide with the objective of capitalizing on various synergies and realizing greater economies which reward larger enterprises. Sometimes this strategy is called "buy and build" or a "leveraged buildup" or an "industry consolidation". GTCR (Golder, Thoma, Cressey and Rauner) one of the nation's most active consolidators has financed well over 70 management teams and acquired well over 300 companies in diversified industries. All consolidations do not work, e.g., the Loewen Group (funeral homes) recently filed for Chapter 11 reorganization protection after finding itself burdened with surmounting debt from an acquisition spree of 1,070 funeral homes and 483 cemeteries. Sponsors of Rollups - See - "Consolidators", "Companies with an agenda to go public" and "Poof IPO's". High Net Worth Individuals - Be sure these individuals are sufficiently committed to face the challenges of your business. Many individuals dream about buying companies, however, they often lack sufficient commitment. If however, they are serious, have significant financial resources and industry expertise, they can be good buyers. Foreign Companies - These buyers move more slowly. Make sure the Director of North American or US Operation has experience and a serious presence (and interest) in acquiring companies in the USA. Caveat Vendor: Many Companies are sold when a company which is not on the market is approached unsolicited by an interested buyer. In these cases, the buyer has a very specific reason for seeking an acquisition or merger. They have usually performed some preliminary due diligence and seek a friendly and quick acquisition. This can work out fine for both parties, however, I have had too many conversations with former owners, attorneys and accountants, after the sale, whereby the seller has left a lot of money (consideration) "on the table". The owner did not proactively approach the best strategic buyers in the marketplace and thus did not have the opportunity to create a competitive environment and thereby leverage better terms, structure and a higher price. Often, buyer's that an owner encounters by chance are not the best in the marketplace.
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