Finding the Right Strategic Acquirer for Your Business Exit Strategy

Introduction – Business Exit Strategy and Tactics
A. Why is it important to finding the right acquirer?

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Selling your business is one of the most monumental decisions you will make as an entrepreneur. Beyond just the financial rewards, you have invested incredible time, energy, effort, and capital building your company from the ground up. Establishing your business exit strategy vision and goals will help to define the ideal acquirer.  Typically, the best acquirer will understand your industry, customers, and challenges and be experienced in owning-operating businesses of a similar size and type.  Armed with capital, they will typically produce the best offers, at the highest price and terms, while planning to retain all employees, management, vendors, and customers.  Often, they will require the least amount of transition training and support.  They will allow you to achieve a business owner’s dream for their family’s next best life by confidentially exiting their business for the most important payday of their life.

B.  Setting the stage for the strategic partnership journey.

This process requires thoughtful situational analysis, evaluation, and research to find the best acquisition partner who will see the full value in your organization. One who appreciates the blood, sweat and tears behind your business’ success plus the value of future growth opportunities. With the right acquirer, you solidify your company’s future for your employees, customers, and vendors, as well as your family’s financial freedom. This article outlines key steps in the partnership journey.

Understanding Your Business Value

A. Importance of professional valuation

Before commencing your search, an accurate understanding of your company’s worth is imperative. Professional valuations combine quantitative metrics and qualitative aspects providing an objective measure. While tempting to oversell or embellish a specific factor, doing this misaligns prospective purchasers with the company’s actual conditions. Key components can include:

  • Financial History & Projections: Trends in revenue growth, profitability and other benchmarks essential to valuation.
  • Customer Composition: Retention rates, lifetime value and loyalty indicators convey stability. Customer concentration, industry trends and growth rates are also considered.
  • Competitive Differentiation: Features, intellectual property such as patents, product/service development time, and other barriers preventing copy-catting by emerging or offshore players.
  • Leadership Team: Depth, industry reputation, experience level, compensation, and succession plans.
  • Addressable Market: Total size, share and potential expansion in your niche.

This analysis should incorporate growth expectations.  It’s critical to align buyer and seller around a shared vision for the business’ trajectory.

Identifying Strategic Partners as Part of Business Exit Strategy

A. Defining strategic partners in the context of M&A

Strategic acquirers extend beyond private equity investors and can include competitors seeking expansion into new geographies or product lines. Companies up and down the supply chain are also prime candidates if acquisition improves their competitive positioning.

B.  The role of industry analysis in identifying potential acquirers.

Industry connections via industry associations, conferences, existing networks and research often uncover those open to acquisitions as part of their growth plan. Qualified prospects will appreciate how acquiring your company will achieve their strategic vision better than alternatives (such as starting a new business division). Additional analysis can examine cultural alignment regarding leadership, management, decision processes, risk tolerance and related factors because the goals also include a smooth integration after acquisition.

C. Leveraging professional networks to discover strategic partners.

Discreet backchannel inquiries via networks provide transparency into company reputations and leadership styles. This helps narrow potential partners to those with sincere interest and having values aligned around culture and vision.

Building Trust and Communication

A. Establishing a connection with potential acquirers.

Early discussions should focus more on relationship building than hard-nosed negotiating. In fact, virtually NO NEGOTIATION should occur as preliminary and basic information is shared.  This stage is about understanding priorities, styles, and vision on both sides more than dollars. Transparent, candid communication builds trust when entering unfamiliar, high-stakes partnerships.  The goal at this stage is to have prospective, qualified purchasers ‘fall in love’ with your business, including its opportunities, problems, and future growth.

B.  Importance of transparent communication in the M&A process.

Open and honest communication is a hallmark to an effective exit planning process.  During the M&A process, every issue and potential issue will be disclosed both to your M&A advisors and prospective purchasers.  This requires openness around sensitive areas such as business finances, owner’s compensation and perqs, potential non-business expenses run through a company’s financials, personnel changes, lawsuits (both actual and threatened), post-acquisition training, employee retention packages, customer relationships, and more. Open communication and advance disclosure, combined with preplanning during exit planning, can address these concerns to mitigate their effect.  Responses and action plans can demonstrate that the seller has minimized the risk, while directly reinforcing the purchaser’s shared goals and commitment to a collaborative transitions. Afterall, the acquirer is purchasing FUTURE cash flows;  we need to address and minimize their risk if we want them to pay premium price and terms.  Confidentiality agreements and dealing with industry experienced acquirers can also ease hesitations in sharing these vulnerabilities.

Tailoring Your M&A Strategy

A. Overview of M&A strategies specific to manufacturing, defense, oilfield services, etc.

Effective business exit strategy tailors approaches based on norms and regulations governing your specific industry. For example, the long runway for regulatory approval in aerospace and defense means initiating conversations years in advance of intended transactions. In pharma, relative weight of R&D pipelines and IP assets play a larger role versus service businesses.

B.  Understanding industry nuances and adapting the approach accordingly.

Top advisors possessing direct expertise in your niche for insights into valuation standards, expected negotiation tactics and post-acquisition integration issues. Connecting with others who have sold similar companies recently provides helpful shortcuts versus common pitfalls.

The Negotiation Process

A. Crafting a compelling business exit story.

It is critical to build and demonstrate that the business owners’ exit will not diminish future cash flows.  This needs to be shown with a reasonable, achievable plan that supports the sellers’ exit and smooth post-closing transition.  Creating a large pool of qualified, strategic buyers, who accept and believe in the exit vision, will ensure that multiple qualified buyers compete for the acquisition.  We want this pool of buyers to ‘fall in love’ with the business and the owners’ exit plan;  this will create optimal leverage at the negotiating table. Sharp tactics backed by win-win collaborative mindsets will allow the business owners to achieve their dreams of moving into the next best phase of their life.

B.  Navigating the negotiation table with potential acquirers.

The most effective negotiations balance factually sharing the businesses situation analysis including risks and opportunities, in a manner that builds rapport and trust established during exploratory discussions. Initial interactions are typically facilitated by the M&A advisor between sellers and purchasers (ONLY) via video or conference calls, followed by confidential after-hours site-visits to operations, meeting personnel who are involved with the M&A process.  This step by step approach allows the purchaser to directly ask questions and demonstrate sincerity in stewarding your legacy. All parties can also assess cultural alignment between the 2 companies, including integration considerations.

Confidentiality in M&A Business Exit Strategy

A. The significance of maintaining confidentiality throughout the process.

Confidentiality remains imperative when evaluating potential acquirers to avoid destabilizing existing business relationships. Premature disclosures introduce unnecessary uncertainty among customers, employees, vendors, and partners during a sensitive exploratory process. Your M&A advisor can facilitate discreet and confidential communications between all parties.  Discretion preserves negotiating the seller’s leverage as long as possible.

B.  Best practices for ensuring discreet negotiations.

Discreet processes begin with the seller’s approval of teaser information or blind profiles which will be used during initial contact with prospective purchasers.  This is typically followed by prequalification of potential acquirors for financial capability and sincerity, plus requiring NDAs BEFORE sharing items such as financials, strategic plans, or personnel details.  Interactions are limited to principal parties until a Letter of Intent (LOI), or offer is mutually accepted.  Contact with other parties (management team, customers, vendors, …) is typically prohibited.  Occasionally, this type of contact will be permitted if a critical juncture is reached assuming all parties agree. During due diligence, it is important to maintain discretion to prevent premature announcement of a pending sale.

Ensuring a Smooth Transition

A. Preparing the business for a seamless handover.

Once the ideal and perfect fit acquirer is selected and the due diligence and quality of earnings processes are complete, transition planning begins in earnest.  Open collaborative discussions may include additional members of the seller and acquiror’s teams. HR considerations regarding benefits, payroll, and retention packages require transparency pre- and post-close. Similarly, marketing, sales, and even R&D processes demand planning and preparation before announcement of a sale.

B.  Collaborating with the acquirer to preserve the seller’s vision, goals, and culture.

Developing detailed transitional plans helps to successfully preserve the company’s vision and intrinsic culture while identifying areas for growth and improvement under new ownership. This facilitates retaining key talent assuring customers and employees that the essence of the business remains consistent amidst changes in ownership.  A communication plan should be developed and agreed by all parties.  Typically, announcements of ownership change can be made as stages of progression to minimize anxiety or fear amongst the stakeholders.

C.  Post-acquisition support and relationship-building strategies.

After the acquisition closes, all parties need to collaboratively implement changes by balancing continuity with growth. The seller should maintain involvement to steward adjustments to strategic direction and prevent disruptive course corrections down the line. Ongoing relationship building ensures that the acquirer’s management team understands the existing company “DNA”.

Conclusion

The strategic partnership journey demands thoughtful planning and consistent communication between sellers and their choice of buyer. Valuing your company appropriately from the start and identifying partners sharing vision around future growth delivers successful negotiations and closing. Tailoring your business exit strategies to your specific industry smooths integration hurdles and allows new owners to leverage your existing competitive advantages.

While initially daunting, choosing the right M&A advisor can help you understand and become comfortable with the vulnerabilities required to evaluate potential acquirers thoroughly. Protecting confidentiality throughout transaction processes preserves stability and allows you to find the right acquiror willing to partner and steward your life’s work toward new heights. With preparation, hard work and relying on leadership from exit planning experts like Noble Adam Group, the risks become manageable and open new possibilities for your business and personal and family financial legacies.

For 3 decades, we have been helping business owners and their families move to the next best phase of their life by confidentially exiting their business to their choice of best buyer … and for the biggest and most important payday of their life.  Contact Adam Noble Group today to continue your journey.