Are You Ready to Buy A Business?
Growing your business comes down to build versus buy. You can invest in business development to grow your business through developing new markets or products. This takes time and entails the risks associated with entering new markets and developing new products. Alternatively, you can acquire those businesses that have market positions that complement your core business thereby generating immediate financial results while reducing the competition. For many business owners today, buying a company is the faster and less risky choice to grow their business.
In order to determine if you’re ready to buy a business, you should consider the following factors; personal readiness, business performance and market readiness. These are discussed in detail below. Read on and find out if you’re ready to buy a business.
Consider the following questions; Are you ready to grow your company? If so, at what price? Do you have the management team in place to successfully integrate an acquisition? How will the market react to the change? How will your old and new customers respond?
These questions are important to answer. And, chances are, you’ve been thinking about these issues in throughout your business self-evaluation. These critical questions should ideally be answered before you continue. The answers to these questions help you determine your goals and a clear go-forward strategy.
Once you determine that you and your team are ready to acquire a company, then it’s time to evaluate your company’s performance. You will want to review and analyze your business performance over the last three years. Ideally, your current business should be a solid foundation for supporting the growth through acquisition. Capital partners will want to be sure that your company has the financial horsepower to support the combined entity. And, you will also need to identify the unique attributes of your business and determine what kind of a company would present the best fit for the future growth you are planning.
It is important to view this area in an objective manner and, as an owner, it’s not easy to do that. But if you take an objective view of your company and its performance, and you believe that it is solid and strong, then you are ready to make the next move.
In some cases, however, when business performance is not strong or ideal, it will be better to make improvements and postpone plans to buy a company. This provides time to make necessary improvements and implement changes. Changes that will enhance your company’s ability to attract the capital needed to make and integrate acquisitions.
The last factor that needs to be in place is market readiness. It’s important to consider the market place in which your business lives and understand if there is a place for your expanded business to thrive in this environment.
We have seen dramatic changes in business sectors in the past 20 years. The ebb and flow of the economy and how demand creates new businesses. It is important to understand the economy and how it relates to your business sector so you can gauge the level of desirability for a transaction. Through our research and insights into comparable market transactions we can provide market value and timing insights.
Again, this alignment of these three important factors (1) personal readiness to acquire, (2) strong business performance, and (3) positive business trends in the market place, all come together, like a “perfect storm”, to result in an optimal buying environment. When you have all three factors in your favor, then you are ready to capture your future!
You, Your Company, and the Marketplace are Ready,
There are a number of approaches to buying a company. You can go at it along and ask your network of friends, family and business associates and perhaps get very lucky and find a company to buy. Or you can engage a business broker or a Mergers & Acquisitions Advisor. Or you can hire an investment banking firm to help. Let’s explore these options.
The first option, buying a company on your own, while likely tempting, is not always the most productive. Yes, you know your business best and can determine what company is best to purchase and why. But buying a business is a time consuming process and most owners don’t have the extra time. Further, most owners can create more value by spending time working on the business to keep it in top condition so when you make the acquisition, you have plans in place to make the integration with your existing business.
The second set of options, working with a business broker or M&A Advisor, are also viable ways forward, but in our opinion, these are not the best to provide maximum value in the long run.
Business brokers typically focus on smaller, “main street” companies where the owner is the central figure in the business. They function much like real estate agents and pursue simple listing details that only include major metrics like revenue, owner’s income, and the asking price. They don’t provide a comprehensive business overview or help you to evaluate the organization in a complete and holistic manner. They leave that in-depth review and analysis to the buyer.
M&A Advisors function much like a business broker but focus on larger size businesses. They present a purchase opportunity as a 100% sale with limited structure options. Often times a M&A Advisor will set and present an asking price rather than explore the true opportunity and letting the market dictate price and structure.
The third option –Investment Bankers– do all of the above, but so much more. Investment Bankers provide a comprehensive plan that identifies businesses that fit your target criteria, work to develop a list of on and off market opportunities and seek to truly understand the target business and its potential. Investment Bankers also work to secure the capital to facilitate the acquisition.
In short, Investment Bankers do more. The role of an investment banker is to act as your advisor, to help with all aspects of a purchase transaction and to provide you with options. Investment Bankers are able to manage every step of the buying process for you, the buyer. They do what they do best; find the best deals. Investment bankers focus on the business of buying a business so you can continue to focus on running the business and driving value.
Investment Bankers are also licensed by FINRA, the Financial Industry Regulatory Authority, a not-for-profit organization authorized by the United States Congress to ensure that the broker-dealer industry operates fairly and honestly.
John Illes, Founder and CEO of Illes Investment Banking is also a Managing Director with Merit Harbor Capital, a Washington state based investment banking firm. John works with Merit Harbor Capital for all investment banking activities. Together they have many years of experience running and selling small to medium sized companies and they understand what it takes to build an organization.
Why Work With An Investment Banker?
Buying a company is perhaps a once in a lifetime opportunity. That transaction can take your company to the next level when well executed. For most business owners, it may very well be one of their most important financial transactions. Take advantage of this opportunity and work with experts to expand and grow your business.
Investment Bankers specialize in finding smart money to support a company’s growth. That means we find capital partners with the industry experience and knowledge to support business owners and executives.
But more than just buying a company, an investment banker can provide a range of financial options for buyers. These options might include minority equity investment, recapitalization, senior and junior debt financing and even seller financing.
Investment Bankers also help you understand the seller’s point of view. We can share details from other industry transactions to help sellers understand the buyers value determination.
Importantly, there must be a process to acquire a company. Investment Bankers follow a process and, the team at Illes Investment Banking and Merit Harbor Capital uses a proven process that has worked successfully in the past. It encompasses deadlines and key milestones which are designed to create the best go-to-market plan for your company and deliver as many potential companies as possible in the current market. Employing a winning process helps you to capture your future.
The Illes Investment Banking Success Pathway
Buying A Company
While other investment bankers may have a process to buy a business, Illes Investment Banking has a continuing, evolving and successful process that has worked well for our clients. This process involves three phases, each building on the others, to provide purchase options and choices that are good for you, your company, your employees and your customers.
This process is fairly straightforward, but is important to acknowledge and manage. Our process employs three main phases; (1) Deal Preparation, (2) Active Marketing, and (3) Deal Close.
The Deal Preparation Phase is our opportunity to get to know you and your company. It’s also your opportunity to get to know us. When we determine that there is a good fit, and we believe that we can be successful in helping you to buy a business, we proceed together. Phase 1 has two steps; (1) Client Engagement and (2) Target Research.
Client Engagement begins with identifying your goals and determining your best options and alternatives. Here we determine the best deal structure for you; if you wish to purchase 100% of a company or if you wish to buy a controlling interest and work with a new capital partner to accelerate growth together. We discuss your needs and identify your goals. The time invested at this stage to clarify your needs and goals will lead us to a more efficient and effective outcome.
In the next step, Target Research, we work together to identify the types of companies that support your goal. We ask a range of questions and gather information about your company. Sometimes we ask about areas that you take for granted and haven’t thought about in years.
hat’s okay. We are building the foundation for a transaction, and the quality of the foundation will be reflected in the quality of the final transaction.
The Target Research step is the foundation for the entire buy side process and the time and effort spent here will pay dividends as we progress into the next two phases. We cannot emphasize enough the value of good and extensive preparation. It really will pay off throughout the process with speed, accuracy and overall efficiency of the deal.
At the end of the Target Research step, we will have created a Target Overview document with a broadly focused potential list of companies to buy.
This is the part of the process that people think about when they talk about buying company. It is when you step up and express an interest in purchasing a company. It is the time when they learn a little more about what you have to offer so we can provide the target with an indication of interest in order to proceed.
The Active Marketing Phase also has two steps; (1) Market Launch and (2) Indication of Interest.
When we begin working this step of the process we reach out to every company on the Target List. Our goal is to obtain market feedback and secure as many executed Non-Disclosure Agreements as possible. In many cases, we’ll identify new potential companies to buy, and with the buyer’s approval, we’ll add them to the list as part of our market outreach.
Our job is to gather as much information as possible on a target so that we can provide financial and business analytics to you. After we review the prospective targets with you, and when there is a good fit, the next step is a one-hour phone call where we learn about the company’s history, performance and future growth opportunities.
We encourage you to engage with as many target companies as possible. This is learning process for all parties involved, and in the past, we have been pleasantly surprised by targets that we might have initially passed on early in the process only to come back as part of the process after reflecting upon a potential sale or merger. It’s important to allow for relationships to build so both you, and the potential seller can see a future in exploring any particular deal.
While it is easy to become focused on the transaction value, in many cases the fit between you and the seller drives the transaction. And, yes, we have had targets pass over the highest dollar offer and take instead “the best fit” offer which presents exciting growth opportunities and other intangible value for everyone involved.
Our goal is to lead a broad, but focused acquisition search to provide you with a range of quality options.
Crafting an Indication of Interest provides the target with your expected transaction value and structure based upon what you know at this point in the process. This step is to ensure that both sides are on the same page as far as valuation and structure. It is critical that there is broad agreement at this stage before everyone commits more resources to on-site visits, information requests and follow-up meetings. In many ways, the IOI is the ticket to deeper exploration and evaluation.
At this point you have chosen the company you wish to purchase and it is time to finalize the transaction. This phase also involves two concurrent steps and they are (1) Letter of Intent and (2) Deal Completion.
In this step, you will present a more formal offer to the seller, known as a Letter of Intent, or LOI. Based upon your evaluation and learnings, you will be able to further refine the offer as stated in the IOI. The LOI is where everyone sharpens their pencil. In some cases, we may discover issues that necessitate a lower valuation or varied structure than we stated in the IOI. In other cases, we may find incremental value that allows us to sweeten our offer to increase the probability of a transaction while still making the acquisition attractive to you, the Buyer.
It is important to remember that the LOI is the high-water mark for the transaction value and will contain all of the deal points for the purchase documents. It is critical at this stage that the transaction valuation and transaction structure are clearly defined and detailed. Unless we uncover issues or risks during due diligence, the overall transaction value will remain as stated in the LOI.
It is wise to invest the time and effort at the Letter of Intent stage so that the final phase, Deal Close, can proceed smoothly and on schedule.
Deal Completion is the final step in the process and it involves due diligence and the drafting and development of the purchase documents.
By this time in the process most everyone is excited —-but fatigue can often begin to creep into the equation. It is easy to get frustrated and annoyed with the tedium of this step. The work that was completed in the Deal Preparation phase pays dividends now as you are mostly prepared to ask more in-depth questions and can act quickly with follow-up requests. As the Buyer, we set up a Virtual Data Room that makes it easy for the Seller’s team to upload documents for our review. The VDR also allows everyone involved in the transaction to see all of the documents wherever they are located. We find VDR’s convenient and efficient in getting deals closed on time. To keep the transaction moving to schedule, we suggest setting milestones for key document and information requests at the start of this phase.
The most important milestone in this step is the closing date. Once the closing date has been determined all other key dates can be established from there. The absence of key dates and milestones can cause the purchase transaction to drag on and on and on. It’s important to heed the industry saying that “time kills all deals”. We strive to keep a deal on schedule to reach the closing date.
We have found it to be extremely helpful to take the initiative and draft the purchase documents early in the process so that you can present them to the seller. This approach accelerates the process by providing a starting point for the purchase documents to be discussed and finalized.
We recommend that the purchase documents be presented during the LOI negotiation step to allow the seller to share in your vision for how the transaction can be executed. If a mutual alignment cannot be achieved then, an alternative acquisition may be a better solution. Better to find out earlier than later if you are going to have documentation issues with a prospective seller.
This proactive approach helps identify any conflicts or complications early and provides ample time to find mutually acceptable solutions thereby maintaining the closing schedule.
Note that it is critical for all parties to work diligently to review and provide comments to one another as quickly as possible. Communication between each party’s attorneys is also critical. Neither side can assume that the other side is dong “something” when they don’t see any activity.
Setting and communicating aggressive but achievable expectations helps to keep everyone focused and on schedule for a successful close.
The transfer of funds is a critical milestone that represents the end of the process. It is important to remember that the deal isn’t completed until the money is in the bank. You and the sellers must be committed to “putting the ball across the line” to avoid coming up short towards the end. At this point you have a successful transaction and the next phase of everyone’s future can begin.
As with all deal closings at Illes Investment Banking we seek to reward the deal team for their work and efforts throughout the process. Since we stay involved during all the phases and steps described above, we find ourselves glad to have been part of the effort. This is the time that we work with you and your team to plan a celebration dinner. Everyone can come together and share in the satisfaction of a job well done, a goal achieved and the beginning of the next phase of your company’s growth.
Why Work With Illes Investment Banking?
It is important to find the right partner to lead you through the process and there are many investment banking companies who can help with this endeavor. But there are not many investment banking firms that are led by people who have owned and operated companies like you.
John Illes of Illes Investment Banking is not your “typical Investment Banker”. He has lived in your shoes and he has real life business experience. He held a variety of positions in large Fortune 500 companies, and also in smaller independently held companies. He has managed and operated companies with 20, 250 and more employees. He has been a Chief Operating Officer, Operations Vice President and Vice President of Marketing.
After turning around and helping to sell a lower middle market company based in Las Vegas, NV, John became interested in investment banking. In 2012 John became a Certified Mergers & Acquisition Advisor and since then has helped lower middle market companies.
His past experience running companies helps him identify “sticking points” where prospective capital partners will have questions. His experience as an investment banker will help him recommend an appropriate course of action for the long run.
John is also a Managing Director with Merit Harbor Capital, a Washington state based investment banking firm. John works with Merit Harbor Capital for all investment banking activities. Combined they have many years of experience running and selling small to medium sized companies and they understand what it takes to build an organization.
To learn more about how we create buy-side successes, please contact us today. It is never too early to plan for “capturing your future”. Complete the form below and John Illes from Illes Investment Banking will contact you shortly to learn more about your investment banking needs.