The Tactical Target Acquisition Process
Define Investment Criteria
Evaluate what types of businesses might be suitable to your resources, background and geographic interests. Most buyers don’t know what they actually want, just what they don’t want. Remember that there is no such thing as a perfect business so pursue one that is an 80% fit and mold it to your desires. Stay open minded and search broadly, narrowing your search as you become more knowledgeable.
Search and Find
Through your own efforts or by engaging a professional advisor to assist you, find an acquisition opportunity that appears to be a possible good fit with your strategy and goals.
Pursue from a Position of Strength
Adapt your company profile and management/officer personal resumes to the target industry. Be prepared to document financial capacity to complete the transaction. An individual buyer should have a personal financial statement, good credit report and even a banker prequalification or comfort letter on hand. Be prepared to sign a confidentiality agreement to assure your pursuit is not a threat.
Preliminary Assessment and Response
A business that is properly prepared for market will furnish a comprehensive review that will address most of your key questions. Alternately prepare a short list of information you need at the outset. Once received, have the courtesy to provide your initial thoughts within five business days after you have received the information requested.
By scheduling a site visit, you will better come to understand the pulse and operation of the business, and the prospects for working effectively with the current ownership/management as negotiations and later transitions commence.
Conditional Offer & Negotiation
A buyer will typically not be able to get all or even most additional questions answered before presenting a conditional offer or letter of intent. Save your valuable time, and that of all involved, by trusting the initial information provided and formulating a realistic offer. You will be afforded ample opportunity in the process of due diligence and final negotiations to dig in as deeply as your require.
Due Diligence, Definitive Terms & Closing
Schedule due diligence to occur within a reasonable window of time shortly after an offer or LOI is agreed upon. As early in the process as possible, both buyer and seller will want the further assurance of closing that is provided by completing due diligence. The parties should strive together to complete due diligence and draft definitive purchase agreements as efficiently as possible.
To help you enter the partnership with AdvantEdge Advisors as knowledgeable participants, here are the answers to the most frequently asked buyer questions.
Q: Is there a screening process involved?
A: Yes, to ensure the buyer’s and the seller’s goals are aligned.
Q: Why do I have to provide financial information to AdvantEdge?
A: It will show your fundamental ability to make an acquisition of substance, saving your valuable time and the time of all parties involved. We realize that just because you have a few million dollars, doesn’t mean that you are going to spend it all on buying a business or that you will pay more than the business is worth.
Q: Will my personal or company information remain confidential?
A: Confidentiality is extremely important to AdvantEdge Advisors. Your prospective buyer profile will be securely stored and accessed only by those associates working on your project. This information is proprietary and will not be made available or sold to anyone else.
Q: Businesses are for sale because there are problems, right?
A: Businesses are for sale for lots of legitimate reasons besides the owner is getting old and wants to retire. Eight out of ten businesses are for sale simply because the current owner has been doing it for a long time and wishes to pursue other business interests. While there is no such thing as a perfect business, new ownership often reinvigorates and re-energizes the business allowing it to move upward to higher levels than ever before.
Q: Will I have to pay for goodwill?
A: Yes, good businesses will command (in the markets) a price well beyond that of tangible asset values. Bad businesses are offered routinely as “asset sales” which means you would be indeed buying only “hard assets” but those assets don’t produce anything of interest. Don’t get too hung up on the goodwill component.
Q: Should I borrow significantly to buy a business?
A: Everyone has different tolerances for risk. Let’s assume that you can buy a business that generates $100K in earnings for $400K cash. Alternately you can take the same $400K and with leverage, buy a business that generates earnings of $400K. Most astute business buyers will choose more performance in exchange for responsible debt leveraging.
Our firm is known for regularly offering the best opportunities in our region. Please provide the following confidential information so that we may share our current acquisition opportunities.