When you’re considering growth through acquisition, it may seem obvious to focus on companies that are actively searching for a buyer. In fact, this is the most common procedure, widely advocated by investment bankers. However, it is an approach that will severely limit your chances of finding the right company.
For-sale companies are often “for sale” for a reason. Whether the reason is financial difficulty or ownership problems, it can make these targets much less attractive. Also, with for-sale companies, there are often multiple interested parties (including your competitors), allowing the seller to drive up the price. This can shift the balance of power to the seller. Finally, the inventory of for-sale companies can dry up quickly, leaving you with too few options and backing you into the corner of trying to make an inappropriate company fit your one chosen need.
At Capstone, we usually guide our clients to focus on “not-for-sale” candidates. When a company is “not-for-sale”, it simply means it isn’t actively seeking a buyer. If through your search and screening process, you discover a company that could be the right fit for your acquisition criteria, then it should be pursued.
The central point here is that every company is for sale — for the right equation.
“Equation” almost always means more than price. It can include timing, ownership, reputation, vision, location and a host of other factors related to the owner’s values and aspirations. There’s a lot that goes into putting that equation together. For now, the point I’d like emphasize is: don’t exclude any company from your acquisition search simply because it isn’t wearing a “for-sale” sign. If you find a company that you believe is the best candidate to meet your chosen strategic need, then my advice is: go for it.
Pursuing not-for-sale companies holds several significant advantages. Not-for-sale companies put you in a proactive, rather than a reactive, position, allowing you to choose what you want. The management team of a not-for-sale company will be actively engaged in the business, not eyeing the exits. Often they will be eager to stay on (if you want them to) after the deal is done. Another benefit of looking at not-for-sale companies is that you can maintain stealth in the marketplace, allowing you to pursue an acquisition that no one else knows about. It also lets you avoid the auction process, which often drives good people out, and prices up.
Finally, by including not-for-sale companies in your search, you have significantly expanded your universe of potential acquisition prospects.