Why You Need the Services of a Buy-Side Intermediary When Making Acquisitions

There are many reasons why companies make acquisitions. A few reasons may include:

• Your competition is in trouble and the time is right to put them out of their misery

• You want to grow your business and it makes more sense to buy the competition rather than spend excessive marketing dollars trying to beat them

• You can operate more profitably than your competition due to economies of scale

• You want to penetrate new markets and capitalize on the start-up efforts of others

• You want to acquire your suppliers to control your material costs

• You need to diversify your product line as a hedge against the economy

• You’re making so much money that it’s a better investment than putting it in the bank

Whatever your reason, it’s a given that when you are ready to begin the process of making an acquisition that you will call upon the services of a professional to assist you in this grand endeavor. Most companies think that buying a business is like buying a used car. You show up at a business “store” and see what they have available and maybe kick a few tires in the process. Never mind that the used car salesman or business broker in this example has his own agenda, namely to represent the best interests of his client. This process can often be time consuming and disappointing in its outcome, as the companies that you really want to buy usually are not officially for sale.

Rather than accept “pot luck” or wait for the right opportunity to emerge on the market, having a professional intermediary on your team can immediately reap big rewards. A buy-side engagement is just that; having a professional who is intimately familiar with your acquisition criteria and who knows how to scour the industry for the right target and go to work for you to achieve your objectives. No time is wasted kicking tires, competing with other buyers, or waiting for brokers to produce adequate financial data. Approaches are made to companies that are not officially on the market and who are usually quick to respond to an opportunity where a buyer is readily available. The absence of intermediary fees on the seller’s side can also be a great motivator for sellers who would otherwise shy away from the typical business broker who will charge them as much as 12% to market their business.

Business acquirers are often unaware that the process of buying a company can involve lengthy negotiations and can sometimes hinge on being able to discern the motivation of the seller, which often is something other than money. The law of supply and demand comes into play in acquisitions to a large degree. Namely, when a buyer approaches a seller who is not otherwise on the market, the price will usually go up. The seller aptly reasons that if you approached him, you must want his company badly enough to pay any price. Conversely, if a seller is motivated enough to initiate a call to you, he runs the risk of a lower offer because he comes to you with hat in hand. These factors are often deterrents to transactions that otherwise could be successfully negotiated. An experienced intermediary can level the playing field for both parties by initially not disclosing the identity of the buyer and can provide insight and research into what would make a target acquisition viable.

Many potential buyers would consider the cost of an intermediary an unnecessary expense since typically brokers are paid by sellers. But keep in mind that in the end the fee is always paid by the buyer since it comes from the proceeds of sale. It’s no different than selling your house and adding the real estate commission on top of what you would really accept if there were no broker involved. The benefit to you as the acquirer is that you obtain representation that protects your interests instead of those of the seller, services that save you time and money by sourcing the right opportunity quickly, and the ability to pay for results when they are achieved.

In summary, a professional buy-side intermediary can offer the following benefits to your acquisition effort:

• Discretely approach your competitor or potential acquisition target without revealing your identity to determine whether they would consider selling

• Learn what motivates the seller and how a timely sale can satisfy his needs

• Provide relevant data on the target acquisition for your quick evaluation

• Facilitate dialog and lay the groundwork for a win-win relationship

• Offer creative solutions to challenges encountered during negotiations

• Recommend optimum financing to maximize your return on investment and protect you from contingent liabilities

• Coordinate third-party professionals to perform due-diligence and successfully close the deal

Many business owners who would otherwise be interested in making acquisitions are discouraged from this process due to a lack of resources. It’s a common misconception that you need cash in the bank to go on a buying spree. Not so. A professional intermediary can evaluate your resources and recommend the best way to use your existing assets, combined with the assets and cash flow from the acquired company to fully leverage the acquisition. We encourage you to consider our services as you embark on your quest for growth and invite you to contact us soon regarding your acquisition plans.

Jim West is the President of Omnimark Financial, Inc., an M&A advisory firm serving middle market clients throughout the U.S. He can be reached at jwest@omnimarkfinancial.com or by phone at 423-855-1155.