When The Wolf Organization/Wolf Home Products CFO Joe Person looks at M&A targets, the aim is to simplify.
"You try to build out a really specific framework for what we're looking for," he says
Speaking on the Philadelphia Smart Business Dealmakers Conference on Refining Your Growth Strategy Through Targeted Acquisitions, moderated by JPMorgan Chase & Co.'s Lisa Kopff, Person says once you identify that framework, it's a lot easier to then pencil in targets that you're looking for rather than having targets all over the industry. Then, he says, you leverage your network — that could be senior management, the sales team, and your banking community, including your accountants, investment bankers and commercial lenders — and let the market know that you're an acquirer, that you're interested, and get that message out there.
It's also important to keep in touch with the executive team at the acquisition targets you've got in mind.
"I've seen transactions occur where the executive reaches out to a business owner and it's perfect timing and it happens within a year," Person says. "I've seen others, particularly with some of our customers, where you have an executive reach out, plant the seed, and sometimes they'll say, We're not for sale. And all of a sudden, three years later as a business develops their succession plan or something could change the business, that they're relying on a conversation, that seed that you planted years ago. So, just leveraging all of those different networks and being active and letting people know that you're an acquirer is important to the process."
Guardian Capital Partners Managing Partner Peter Haabestad says one of the things that is different about private equity as a partner, versus a family-owned business, is PE deals with an internal rate of return — IRR. That means once an acquisition is made, everything is about trying to grow as quickly as possible.
"When we think about our strategy as a private equity owner for our portfolio companies, there's a big question about, Should we build it ourselves? Or should we go buy it? And that's a really critical component. Sometimes it's easier to go buy it than it is to spend the time to go build it. Getting that straight in your head which one you want to do ,then going through all the channels trying to find the right targets, developing a dialogue, staying in front of them, that's all critically important."
He says companies that are going to go do add-ons should understand it is very challenging. Buying another company is something most business owners don't do on a regular basis. So, he says, get some good advisers and work with them to try to figure out how you're going to get this transaction done. Also, get great legal representation to make sure you're not stepping into any kind of issues, or taking on some unknown liabilities you don't know about.
But the most important aspect to think about is whether the platform company is ready to absorb an acquisition.
"Day-one readiness, from the second you buy this business — what's the game plan?" Haabestad says. "What are the five levers you are going to try and pull on? How are we going to integrate this business so you don't squander this opportunity? And you got to look very deep in the mirror at yourselves and figure out if you have the right team to actually try to onboard this acquisition because it only makes sense to go through all that brain damage to go buy a company if you're able to get the value of the acquisition."
RKL LLP Senior Consultant Bryan Redding says for strategic buyers bringing on a new line of business, integrating properly is critically important.
"Most of the emphasis is put on the deal — due diligence, lawyers, get the agreements in place," Redding says. "But there isn't as much emphasis placed on day-one integration: how do these businesses combine together to realize those synergies that are talked about or to have that growth come to fruition?"