How to escape The Clutter Problem in M&A
With 95% of businesses having between 0 and 10 employees, it would be easy for your business opportunity to get lost in the clutter.
How does a business stand out from this clutter and get noticed?
Depending on the size and type of business, it may be possible to make enough noise to be heard above the web din, but that can get very expensive if you adopt a shotgun method such as placing expensive advertisements where you would be buying coverage to reach many people without either the capacity or reason to buy your business.
There is good news for those with businesses with 10+ employees and which have market niches or other strategic benefits to offer industry players.
Rather than wait and hope, or hunt and peck to dig out a handful of obvious targets, best practice is to go after the strategic targets in both A and B categories simultaneously.
There may be between 1-3000 targets within your industry that could and would buy your business.
There are many reasons why strategic buyers might want to not only buy your business, but pay a premium for it. These are identifiable ‘value drivers’. Here are 24 examples:
M&A advisors should identify these for each client’s business and build their marketing strategy around them.
They should then identify the target buyer profile or profiles and actively reach out to them.
I don’t mean one or 10. I mean hundreds or thousands. Even in small markets like Aus/NZ, there are thousands of potential strategic buyers in any given industry. For the US, assume 10 times as many.
This scale of direct targeted marketing suits businesses in the $1-100M Enterprise Value range. Smaller businesses are in the buy-a-job market. Larger businesses can really only be acquired by a small identifiable number of strategic targets. This ‘middle market’ covers around 5% of all businesses.
This is where direct targeted marketing comes into its own. Those with databases tracking industry by industry activity in the top 5% of businesses in each respective market, away from the 95% small business clutter, lead the market in terms of performance.
One often-voiced concern is that this is too reckless and would leave confidentiality in ruins. That needn’t and generally doesn’t happen! We only need to provide enough information for these targets to know whether they are interested or not. Then our clients can assess whether or not an IM should be released to them.
This objection is just a smokescreen from M&A advisors who don’t have the capacity or resources to cost-effectively target and deal with large numbers of potential targets. As a consequence, they dramatically reduce their chances of success.
Exactly the same confidentiality protocols that apply to a chosen few targets also apply to larger numbers of prospective targets who respond. Namely:
- Execute a confidentiality agreement which refers to the business by description and reference number, but not by name;
- Investors provide sufficient information about their company, investment strategy and funding capacity;
- The client decides whether the response is ‘Black’ ‘White’ or ‘Grey’. If it’s ‘Grey’, we present the options of further discussions, meetings or conference calls involving both parties, before the client decides whether an IM can be released.
How can you second-guess the intentions and strategies of thousands of industry players? You simply can’t. So it’s much more sensible to contact each and every one of them and make them aware of an opportunity in their industry.
Those who have been doing this for years, even decades, can explain this confidently to their clients so a sensible marketing process ensues.
And the benefits of large scale targeted marketing leading to a strong contingent of buyers should be obvious. But to state a few:
- Faster process and more target responses in a short timeframe.
- High number of strategic buyers contacted.
- Contact not only buyers who are actively seeking acquisitions, but also those who fit the target profile but may not be currently looking.
- Drive a more competitive process with a larger number of target buyers in the process, facilitating a faster transaction and maximising vendor outcomes.
- This all leads to higher conversion/success rates.