In the 10 acquisitions I have completed throughout my career, only one was done through a bid process. Similar to my approach to gaining new customers, I find that successful acquisitions often begin with establishing a good rapport. These deals were ultimately won by building a personal relationship with the owner of the target company.
I put a lot of effort into developing a relationship with the owners of target accounts. The benefit here is that I often acquire businesses that others are not even aware are for sale. And quite often, the owners of such businesses are not even in the market to sell their companies. The key in initiating these discussions with owners is the opportunity it provides to spell out the strategic benefits available through the business combination.
Present the opportunity
I often point out there is greater growth potential for the business once it is acquired. We can take the acquired company’s technologies and expand them globally, offer existing customers more products, and provide more opportunities for employees because of our broader market reach. Most importantly, there is surety of value in selling the business to someone who understands the market and can thus close quickly because of that market knowledge.
A prime example of this is a company I acquired in Europe. The owners were true entrepreneurs who started their business 12 years prior to my reaching out to them. They successfully grew the company to a €15 million business. However, growth was becoming more difficult as they pursued more established customers and stiffer competition.
I pointed out that in the coming years, competition would only increase and the future would be uncertain at best. Considering our ability to transact a deal in a relatively quick timeframe, it became clear that undertaking a sale with us was the company’s best long-term opportunity. Within three months, we conducted due diligence and closed the deal.
All of this happened because I developed a relationship with the owner and showed a sincere interest in a positive outcome.
Develop a pipeline
Finding these opportunities is not easy. It takes a true effort to develop a pipeline of target accounts.
My search begins with defining the universe of companies that provide products — either like those our company provides or products that I would like to provide to our market. This effort starts with obvious target candidates.
However, the development of a comprehensive database offers the highest value as a more comprehensive potential target register provides the opportunity for a host of strategic gains. Such gains include the prospect for market consolidation, geographic or product expansion and market adjacency.
The process I utilize to develop a comprehensive list of target businesses is through the engagement of employees, customers, suppliers and industry associations. Each group can provide valuable information.
The list is then downloaded into a database where my team details the following key points in a table format:
I prioritize the list of potential acquisition candidates based on our highest need at the current time. For example, in 2010, we needed to become a global business. Our position in North America was strong and we had many customers asking to supply them elsewhere in the world. Target accounts in Europe and Asia took on a higher priority than those elsewhere.
We undertook a review of our database and looked for targets that could expand our reach into both regions. As in my normal process, I personally began to reach out to company owners who had operations in these regions. Within two years, we were a global company with operations in Europe, Asia and North America.
- Engage your entire universe of contacts on developing a comprehensive list of potential acquisition targets.
- Prioritize them based on your current need.
- Personally reach out to the owners of your highest priority targets.
- Explain the strategic benefit of the combination
- Transact the deal in a relatively short period of time.
Scott Becker is president and CEO of Ashtabula-based Chromaflo Technologies Inc., which has completed 10 acquisitions, including five in the last five years. His columns explore how he finds acquisition opportunities, the challenge of negotiating value and the integration template he uses to achieve a successful result.