What Do Buyers Look for in Acquiring a Company?

One of the first things a buyer looks at is timing.  Is it right?  For them.  There are all kinds of buyers: bottom fishers, turnaround specialists, financial buyers, and strategic buyers.  These are just among the few.  The type of buyer will play a major role in the valuation of a deal.

Business cycles also play a large role in activity and buyer perceptions. Think about Yahoo for a moment. In the 1990’s Yahoo was a high flyer with endless possibilities.  In 2000 the internet bubble came and went, and a funny thing happened – Google.  Faced with an uncertain future, strategic buyers emerged looking at Yahoo.  Yahoo said no thanks, and struggled to re-invent itself.

Mark Cuban, owner of the Dallas Mavericks and currently on the TV show Shark Tank, had no such reservation when he sold his internet company in the late 1999.  Broadcast.com, with $13.5 million of revenue in the second quarter that year, was sold for $5.7 billion (Source: Wikipedia) Strategic buyers were all around and the timing was perfect.  Who bought Cuban’s company?  You guessed it – Yahoo!  Timing!  A strategic buyer in the 1990’s, Yahoo became a strategic target in the 2000’s.

In a July 2014 report on macro trends in mergers and acquisitions, Gregg Lemkau, co-head of Global Mergers and Acquisitions in the Investment Banking Division at Goldman Sachs, observes:

“I think the biggest driver of the recovery [in M&A] activity is the return of the strategic acquirer…. It’s really an indicator companies are feeling much better about the outlook.”

Through the first six months of this year, the number of global announced deals greater than $10B is 90 percent above the average of the last four years.  The dollar volume of global announced deals totals $1.768 trillion, up 52 percent over the average of the last 4 years. (Source: Goldman Sachs)

Economist Peter Morici, in a recent opinion piece notes:

“In the industrial era, Henry Ford had a great idea—an inexpensive assembly line vehicle—but needed vast amounts of capital and decades to erect factories and dealerships to build out its full potential.

Google used the free internet to convert its novel search engine into a global company on an initial investment of $25 million.  In 2004, just six years after it was founded, its search engine was available on computers worldwide and its stock was worth $23 billion—a 900 percent return………..

In the digital economy, innovators don’t need a lot of money to create a valuable new company, and even old line industrial firms can use factories, manage supply chains and service products far more efficiently and need less cash to grow.

Consequently, big U.S. companies are flush with billions in cash and too few opportunities to deploy it.  Along with individual investors, they bid up prices for young companies, whose owners are looking to cash in on their initial success, and pay huge sums for IPOs of firms like Twitter and Facebook.  And many big companies have bought back large blocks of their own stock.”

Sooner or later action at the top flows down to middle and small market companies.  Jerry L. Mills, our founding partner, believes the timing has already started for small business owners (companies with less than 500 employees) to begin positioning themselves.  This make take up to 2-3 years for individual companies.  To that end we here at B2B CFO® are working on initiating an M&A Incubator program with national firms such as Morgan Stanley to get small business owners ready.  As Goldman Sachs notes, the strategic buyer appears to be back, and the timing right.

And the prime time window may not last long. In his book The Exit Strategy Handbook, Jerry L Mills talks about business cycles and The Baby Boomer Tsunami™.  Potentially, 7-8 million companies owned by baby boomers will change hands over the course of the next 10-15 years.  That “tsunami” at some point will overwhelm buyers, and a seller’s market will turn into a buyer’s market.  Prepared owners will come out ahead.

Here at B2B CFO® we work on exit strategy solutions for small market companies.  We do this nationally with 230 partners and over 6700 years of experience.  In Florida, we have 6 dedicated partners ready to serve small business owners.  We’ve been doing this for 27 years.  We are unique.  No other firm has the national partnerships, affiliations, resources and experience to serve this market the way we do.  From start-ups to legacy situations, we are here to serve the small business owner.  Give us a call, don’t wait, don’t hesitate!