InSight

Exit and Growth Strategies for Middle Market Businesses

Business For Sale by Mobile App or Web Portal?

By Peter Heydenrych | Apr 20, 2015

Phone with appsFor business owners looking to execute an M&A transaction to buy, sell or merge, or to raise capital for a privately owned company, the world has changed quite dramatically in the last 20 years. It wasn’t that long ago that Investment Bankers hand-searched the printed Thomas Register of Manufacturing Companies to find prospective buyers for their clients. The Thomas Register, of course, has gone online, along with numerous other searchable “databases” such as Hoovers, OneSource, Capital IQ, and so on. Online databases, however, is not where the story ends. Through Google, Bing and other search engines, the internet has opened up a vast world of access and connectivity.

In an Inc. Magazine article “Merger and Acquisition Deals Moving Online” Erik Sherman points to the growth of online venues as a key deal sourcing element increasingly used by M&A Professionals. The article suggests to an exiting business owner that ” …  according to an online global survey … you’d better get yourself online in the right places .. [along with any other search avenues you may explore]”. In a Bloomberg News article “An App for Finding the Perfect M&A Match” Manuel Baigorri writes, “There are apps for dating, shopping, and hailing cabs. Now there are apps for matching companies for takeovers.”

A 2012 Lead Generation Benchmark Report noted: “Over the past decade, the way people buy products and services has completely transformed.” The report characterized as a “Monumental Shift”, the change in buying behavior amongst small business purchasing decision makers, from the traditional reliance on vendors’ salespeople, to the self-empowerment derived from the ability to become educated and informed through research and social media access.

Led by mobile access to information and connectivity, even the simple act of buying a pizza is becoming, more and more, the province of technology, managing the promotion, processes and execution of a sale, leading pizza vendors to declare themselves to be “in the technology business” ahead of being “in the pizza business.”

What about selling a $40 million privately owned business? Can a business owner avoid an Investment Banking fee by registering on one of the many deal portals in search of a buyer? Is the same “Monumental Shift” in the behavior of buyers of goods and services asserting itself in the M&A marketplace? The answer, I believe, is a resounding “NO”.  A middle market business for sale is not a commodity, but a complex individual organism which defies being pigeon-holed and trotted out, in mechanical fashion, in front of a line-up of buyers.

I believe there are a number of reasons why business owners should engage a professional M&A adviser or Investment Banker to handle their M&A transactions.

  1. A middle market business for sale is not a commodity and cannot be presented to prospective buyers purely on the basis of Key Financial Indicators or other metrics.  The true value proposition, possibly different for each buyer prospect, needs to be understood, presented, discussed and appreciated.
  2. A negotiation involving a single buyer is not a negotiation. Only a focused and proactive search for the most synergistic buyers will result in an opportunity to truly negotiate. Most of these prospects don’t happen to be waiting on an internet portal for the right seller to come along.
  3. M&A is more than just “finding”. Even if the right party has been identified, the job is not done. The M&A process includes some careful analysis, negotiation, intermediating, and transaction structuring, involving the Investment Banker, Tax Advisor, M&A Attorney and other professionals.
  4. The benefit of seeing multiple offers in an “auction” or equivalent setting, is essential to determining “market value”.

That is not to say that the internet should not be engaged … by the Banker. Far from it, as the articles referenced above point out, the professional adviser needs to be connected to the “internet of things” to ensure that every appropriate opportunity is investigated and considered in the client’s mandate to find and execute the optimal transaction.

Posted by Peter Heydenrych.

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