When evaluating acquisition opportunities, one thing to consider is what you, as the buyer, can bring to a deal. That could be technical expertise as someone who has been there and done that, or it could be from a management standpoint, bringing a business acumen that might be the key to unlocking a company’s dormant potential.
“If you’re a large institutional investor, maybe you’re just looking for a diamond in the rough that can go it alone and doesn’t need a lot of input from you,” says Warren Young, chairman of Acme Industries and Automation NTH. “But if you’re an acquirer that wants to add value and think you can, then adding some synergies with your background is pretty important to that.”
For example, when he bought Acme, it was a third generation family that thought they had done all they could do with the business, given their experience. But with Young’s background in precision machining, he saw the opportunity to do something with it.
Young says the acquisitions he has made have been predicated on a combination of ideas and people. The latter can be a bit difficult to judge as an outsider.
“No matter what due diligence you do, you’re probably not going to be absolutely sure of what you’re getting in people until you’re inside the company,” he says.
That’s important because for Young, the ideal situation is a business owner who is willing to stay for an extended period and maintain a minority stake after the sale.
“When we come to it together, there’s no question that they have skin in the game and they want the thing to win,” he says.
He advises business owners to sell when they’re still willing to keep a stake because that looks better than a seller who wants to get out completely, particularly where the owner had been a major part of the operations. For instance, if an owner wants to be out in five years, it would be a good idea to sell some of the share of the business before that. Young says that’s more valuable when they eventually go to market.
Speaking at the Chicago Smart Business Dealmakers Conference, Young talked about his experience as an acquirer, and offered advice to sellers on striking win-win deals. Click the link above to watch the full interview.