M&A - Researching Potential Buyers

M&A - Researching Potential Buyers

When selling a company, it is always important to research potential buyers, even before launching the transaction.  This information can then be used to shape the seller’s strategy when preparing for the transaction.  By determining what a buyer wants to accomplish by purchasing the company, the seller can be sure to highlight the aspects of the company that will especially appeal to that buyer and other buyers.

Researching a company is not difficult and is always beneficial.  For publicly-traded companies, SEC-required reports are available to the public online.  A Google search on the company, its products, and its officers will yield helpful results.  Other databases, e.g., LinkedIn and the company’s website are also useful sources of information.

Private companies pose more of a challenge as financial data is difficult to obtain, particularly in the US.  Nevertheless, some simple research can usually give one a feel for the size of a company.  For example, if the company has three 100,000 square foot facilities one has to reasonably assume that their revenues are substantial.  Similarly, if the company has one small location it portrays the opposite.  But, one should never ignore that type of buyer.  Frequently, these companies have investors that are more than happy to put more money into the company for acquisitions.

An M&A specialist can also ask questions of the buyer and of others in the industry.  Finding out what businesses the buyer has purchased in the past, how they purchased them, their criteria for this particular purchase decision, and what they are looking for in a potential transaction are just a few questions that can be posed to find out more about the buyer.  Besides just gaining information, this can have the added benefit of determining if the buyer would be serious in making an acquisition.  A buyer with answers to these questions is more likely to be actually looking to make an acquisition whereas a buyer who does not have answers is probably just shopping around and will be unlikely to make an offer.

Properly researching buyers has no downside; at the very least, knowing more about the buyer will make the transaction go more smoothly.  Furthermore, it may increase the chances of closing the deal, and potentially even increase the valuation.  Thus, there is no such thing as knowing too much about a buyer.

Versailles Group, a 29-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million. Versailles Group has closed transactions in all economic environments, literally around the world. Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987. More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For more information, please contact

Donald Grava
Founder and President
617-449-3325

February 28, 2016

Middle market M&A activity, as measured by volume, was the lowest that it has been in 10 years.  By value, M&A activity in January was the lowest since 2009. 

There are many theories about why this is happening, for example, a volatile stock market, declining energy prices, rising interest rates, the slowing of China’s economy, and uncertainty caused by the US election process.  We would not deem this to be a trend unless we see this continue for a few months.

For sellers, multiples seem to be dodging this lower level of activity.  And, in the lower middle market, that is, companies with less than US$100 million in revenues, there seems to be plenty of interest, activity, and definitely no degradation of multiples.

As we’ve all noted, the Fed may not be able to raise interest rates, energy prices can’t fall much more, and an election won’t stop people from completing synergistic or opportunistic transactions.  Thus, there are plenty of good opportunities on both the sell and buy side.

If you’re interested in completing a transaction in 2016, either buy-side or sell-side, now is a good time to explore and develop objectives.

For over 29 years, Versailles Group's skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million.  Versailles Group has closed transactions in all economic environments, literally around the world.  

Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987.

If you are interested in discussing your M&A objectives, please do not hesitate to contact me. 

Sincerely yours,

Donald Grava
Founder and President
617-449-3325 (Direct)

Value And The Sale of Your Business

When considering the sale of a business, it is very easy for a business owner to be pessimistic about its value.  This is definitely a mistake, particularly because it can cause a potential seller to miss out on potential opportunities.

It may be ironic that I founded an M&A boutique firm to help people sell businesses; however, my own father, when I was young, who owned a small chain of variety stores, decided to close the business rather than sell it.  He sincerely believed that no buyers would be interested.  Mind you, he didn’t test that theory; however, he thought he was right.

A business owner should never assume that his or her business is too small to be of interest to a large company.  It is important to remember that there is a difference between the financial value as portrayed by the financial statements and the market value.  The market value includes more than just how much the company is worth monetarily.  It includes the value of intangible assets like customer base, distribution network, location, having a unique service or product, having loyal customers, and having name recognition along with steady growth and profits.  These and other factors always contribute to a company’s value but are not always easily quantifiable.

Additionally, just because a company has mediocre recent financial results does not mean it will not sell.  Buyers will look at the future of the company and make an assessment of its potential.  This is especially true when the economy is in a down cycle.  It is also important for the seller to accurately analyze the business’ true financial position, marketability, and potential.  A good M&A advisor will know how to do this quickly and accurately.

For a company with modest financial results, it is important not to oversell the company, as buyers may pull out if they feel the results are unsustainable or the revenue and profit projections are unrealistic.  When pursuing the sale of a company, one must strike a balance between underselling the company and missing out on potential buyers, and overselling it and scaring off or losing potential buyers during the sales process.  Once again, a good M&A advisor can help strike the necessary balance.  The advisor can also provide value-added by finding the “right” buyer who will understand the value and potential of the company for sale.

Versailles Group, a 29-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million. Versailles Group has closed transactions in all economic environments, literally around the world. Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987. More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For more information, please contact

Donald Grava
Founder and President
617-449-3325

The M&A Value of a Customer List

With regard to M&A, what is the value of a customer list?

The most obvious step to take when growing a company is to acquire more business by adding customers. To many, it would seem like the larger the customer base, the better your company will look to potential buyers. However, it is important not to fall into the trap of taking on any and all customers that come your way. In the long run, having too many customers could be a strain on the company’s resources and profitability. The goal is to build and maintain a customer list that will add value to your company when you sell it.

When starting a business, it seems sensible to take on any and all clients. It is critical that one not maintain that attitude, though. While this is a great way to build a large customer base, it frequently results in a situation where each customer will only be generating a small percentage of the company’s income. On top of that, marketing and servicing a diverse set of customers is expensive and could have a negative impact on the company’s profitability. At the end of the day, the best strategy is to eliminate low margin customers. It can also be tempting to do things like take on both commercial and federal contracts to broaden your customer list. Depending on the product or service, this could be a mistake. Some buyers will not want to acquire a company with multiple types of contracts and customers with divergent goals and views of the world. Usually, it is more effective to choose one type of customer and work on developing and maintaining those customer relationships. It’s also more profitable, which will drive the valuation more than just a large list of customers.

Specifically, having a large customer list is not necessarily what will make your company appealing to potential buyers. Instead, one should work on developing long-lasting, large client relationships with clients that have shared needs and characteristics. Ultimately, having a smaller number of loyal customers will give your company a higher value in the eyes of prospective buyers. To be clear, profitability per customer is important. It’s also very important to avoid customer concentration, i.e., having one customer account for more than five or ten percent of total revenues. Thus, if your company doesn’t have customer concentration, has long term customers with steady contracts, and they provide above average profits for the company, you’ll have a very marketable company that will generate a high valuation.

Versailles Group, a 29-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million. Versailles Group has closed transactions in all economic environments, literally around the world. Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987. More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For more information, please contact

Donald Grava
Founder and President
617-449-3325