Smart Acquisitions Drive Growth. Here’s How to Get the Owner to the Table. Reviewed by Momizat on . Competitive Intelligence is Key to Smart Acquisitions Part of growth is acquisition.  To do smart acquisitions, you need insight into a business owner’s thought Competitive Intelligence is Key to Smart Acquisitions Part of growth is acquisition.  To do smart acquisitions, you need insight into a business owner’s thought Rating: 0
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Smart Acquisitions Drive Growth. Here’s How to Get the Owner to the Table.

Competitive Intelligence is Key to Smart Acquisitions

Part of growth is acquisition.  To do smart acquisitions, you need insight into a business owner’s thoughts—specifically, her concerns vis-à-vis selling the businesses. These are not questions with simple yes or no answers; it’s more critical to figure out what an owner thought was missing in previous acquisition overtures. What, aside from price, will it take an owner to sit down and discuss a sale?  The McLean Groups’s Zane Markowitz offers a case study and blow-by-blow analysis.

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The best acquisitions are never “for sale,” but they are acquired all of the time by buyers who didn’t wait for opportunity to come knocking.

If you don’t want to miss an opportunity, take the initiative, and augment your deal-flow with those “not-for-sale” prospects that you know are out there. All it takes is a mastery of buy side acquisition search.

Case Study
The McLean Group’s Senior Managing Directors Zane Markowitz and Steve McNaughton first began working for Union Carbide in the 1970s. Executives there had identified an emerging specialty chemicals market: electronics specialty chemicals.

At that time, only 19 companies served the entire electronics specialty chemicals market and the largest player’s sales were less than $5 million. Markowitz and McNaughton developed an in-depth report analyzing all the competitors in that market and asked the owners of each company if they would be willing to meet with their client.

While none of the owners was actively for sale, six of them were willing to meet on a “get acquainted” basis. Union Carbide acquired the best three of those six companies. Collectively, they helped Union Carbide become the leading supplier of electronics specialty chemicals.

Markowitz and McNaughton’s next Union Carbide assignment was undertaken on behalf of its Automotive Chemicals Group, which sought to expand beyond Prestone Antifreeze.

“The best acquisitions are never ‘for sale,’ but they are acquired all of the time by buyers who didn’t wait for opportunity to come knocking.”

Markowitz and McNaughton called 110 “not-for-sale” automotive chemical companies and regularly re-contacted those they believed constituted the best acquisition search opportunities for their client.

Over the course of the next 18 months, Markowitz and McNaughton called WR Grace several times, receiving the same boilerplate, “fiduciary responsibility” response every time: “Everything is for sale at the right price.”

A few months later, an article in The Wall Street Journal reported WR Grace’s cash bind. Markowitz and McNaughton called again. “Well, things have changed a bit here,” said the VP of Corporate Development. Union Carbide moved quickly, acquiring the “not-for-sale” STP from WR Grace before WR Grace actively considered divesting it.

Union Carbide then asked Markowitz and McNaughton to look beyond its original acquisition search criteria and they identified an interesting Baltimore-based firm that did not blend or manufacture automotive chemicals, but definitely served the automotive space.

Union Carbide declined to pursue this new prospect because, at $7 million in annual revenues, Jiffy Lube was too small. The client fatefully concluded, “It’s just too easy to go to a gas station for those services.” Soon afterward, Union Carbide’s Bhopal tragedy occurred.

In conducting a buy side acquisition search, the first steps are rather obvious: identify which business segments or individual companies should be of greater value to your organization than they are to their current owners. Then gather the critical information you require to qualify each prospect. With the right information, you have the ability to clearly identify the most attractive business segments and prioritize your acquisition search efforts by focusing on specific companies.

Expect that the most critical issues to be addressed in buy side acquisition search will require more than Internet answers: this kind of research necessitates direct contact with competitors, customers and, ultimately, the acquisition targets themselves. Such direct, third-party interview-based research often is impossible for a strategic competitor to conduct anonymously so you may need help from a consultant.

You or your buy side acquisition search consultant can build a proprietary database of all companies suiting your acquisition search criteria while also obtaining hard-to-get data on a target’s product line breakdowns, sales and profit, growth rates, markets served (and so forth), enabling you to rank how well individual candidates match your acquisition search criteria.

An acquisition search consultant also should be able to provide insights into owners’ thoughts and concerns vis-à-vis selling their businesses. These are not “yes” or “no” answers, but instead involve in-depth discussion with owners to determine what they believe has been missing in past acquisition overtures. And what, aside from price, it would take for the owner to seriously consider sitting down and discussing a sale of the business.

Bottom line: the most important skill in this process is overcoming the owner’s inevitable objections.


 

Zane Markowitz is a Senior Managing Director of McLean, Markowitz & McNaughton (M|M|M), The McLean Group’s Commercial Due Diligence and Buy-Side Acquisition Search Services Division. Mr. Markowitz has nearly four decades’ buy-side acquisition search and competitive analysis experience.  Reach him as zmarkowitz@mcleanllc.com

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