Do you have an acquisition nightmare story? Many would-be acquirers of manufacturing companies have wasted time, money and energy on deals that fall apart in due diligence. As a result, the business brokerage industry has a horrible reputation. In this article, we’ll examine some of the problems the industry faces and, as a buyer, techniques to determine how to find quality acquisitions that will make it through bank underwriting.
Most small manufacturing companies tend to be larger than “main street” businesses (dry cleaners, pizzerias, retail shops, etc.). Therefore, the level of work that goes into packaging, marketing and selling them is more akin to larger M&A transactions. The problem is that most business brokers are not used to gathering and providing the level of information necessary for success in this field. This is not a commentary in any way on the character of a main street broker, but simply a statement that they may not deal with the same types of information on a regular basis. For instance, if you sell restaurants or retail clothing stores, you don’t normally have to gather information on sales by customer or sector. Nor is it important to know the tolerances and raw materials the company works with. There are certain questions specific to each business brokerage industry that an intermediary who specializes in that industry knows to ask.
Common Problems Buyers Have Shared With Us
Beyond the issue of specialization, there ARE sometimes character-based issues, as there are in any industry. Here are the most common problems buyers have shared with us of their past experiences:
- The broker doesn’t have an exclusive listing and therefore does not have the documents needed to make an acquisition determination
- The broker provides information in a write up that is later deemed inaccurate by examination of the tax returns
- The Seller has not been emotionally vetted, whereby the desire to sell is uncertain
- The broker does not communicate in a timely manner, making it impossible to get needed information
Tips to Make the Journey Smoother
Shopping for a quality acquisition can be a full-time job. You don’t want to waste time or other resources. Here are a few tips to make the journey smoother and give you greater opportunity for success.
- Seek out intermediaries who specialize in the type of business you’re trying to acquire. This is particularly important with manufacturing acquisitions.
- Ask if the broker has an exclusive listing.
- Ask the broker if they have certain documentation prior to expending too much energy.
- Schedule a call with the broker for Q&A before scheduling a meeting with the target company. If they can’t answer basic questions and show little understanding of what they’re selling, run in the other direction!
- Ask for a conference call with the broker and the Seller before a visit – often you can eliminate a sub-par acquisition with this step.
If you, like so many buyers, have had difficulty finding appropriate acquisitions, you’ll like dealing with us. Our clients have to go through a strict vetting process and provide most of what is required for bank underwriting and due diligence upfront. If you’re seeking acquisition within the manufacturing sectors, you’ll like the Accelerated Way!