If you are considering a manufacturing acquisition in the next few months, understand this: We are (and will continue to be for another 3-5 years) in a SELLER’s market. And, what that means is the seller will have a choice when it comes to deciding with whom to sell. Now, more often than ever before, are we receiving multiple LOI’s for listings, giving the seller a strategic edge in the negotiation process.
If you truly want a shot at entrepreneurship, you need to be perceived as a “better buyer” in the eyes of the seller (and the seller’s agent/broker). Here are a few quick tips on how you can separate yourself from the rest of the pack:
So much of your success will depend on your interaction with the owners. Most of the sellers we work with have built their businesses from nothing – started in their garage – and over the years have provided livelihoods for scores of families. Their sweat equity, financial equity, and tenacity are not to be minimized. Their level of education is less relevant than what they’ve accomplished as individuals. Keep in mind, lower middle market acquisitions are generally financed through the SBA, which requires all sellers to hold paper and remain engaged for a period of time, increasing the likelihood of the new owner’s success. If the seller doesn’t believe you value their efforts and history, you’re out.
Read the offering memorandum, or CIM, whatever the M&A professional is calling it. Understand the financials. It’s not important that you be able to recall from memory all the information – most sellers know you’re looking at a number of options. But for God’s sake, show up prepared with questions about the operation, customer concentration, competition, marketing history and opportunity, employee talent, underdeveloped or untapped market potential, prior and future CapEx investments, to name a few.
The seller is absolutely going to want to know your professional history and what qualifies you to earn this opportunity. We often see buyer (s) with minimal or no manufacturing background but have an incredible history in business development, strategic growth, or sales & marketing. While this can be a challenge for the seller to wrap his head around, when appropriate, we’ll make the case for the buyer and encourage a first meeting. When you have the opportunity to make that first impression, make it a humble one.
Have an Interest in THEIR Industry
I inwardly cringed on a recent buyer visit when the buyer said with his out-loud voice that he was “industry agnostic.” We get that many buyers share this sentiment and are interested in an opportunity for a variety of other reasons – i.e. cash flow, location, growth potential. However, the seller does not really want to hear that you DON’T CARE about what type of business you acquire. Stand out from the crowd and sincerely express your interest in what has brought you to their doorstep.
Make the M&A Advisor Your Ally
Similar to the “Be Respectful” tip, a reputable M&A professional will guide both parties to the finish line as appropriate. We always tell buyers we are “contractually obligated to our client, the seller, to vet potential buyers professionally and financially.” The successful buyers understand this, respect this and are forthcoming with requested information. “Attitude” gets you nowhere. Aligning yourself with the broker is one more way to ensure you’ll get to the finish line with the most appropriate acquisition for you!