2015 has been a blockbuster year for M&A activity, with more than 24,000 deals announced worldwide through the end of August, according to Dealogic. Large megadeals accounted for many of these transactions, as businesses looked for opportunities to expand into new markets or get their hands on competitors’ intellectual property. Strategic acquisitions, however, can be just as valuable for small businesses as major global enterprises. Exemplifying this trend, McCormick & Co. recently purchasedTexas-based One World Foods Inc., the parent company of Stubb's BBQ product line. C.B. Stubblefield, a U.S. Army veteran, founded Stubb’s restaurant in 1968 and began selling his sauces commercially in the ’90s. McCormick & Co. bought the company--which employed a staff of around 20--for a reported $100 million. Large corporate buyers bring a number of valuable assets to the table that an individual small business buyer does not, from financial flexibility to geographic reach. With these advantages, however, comes a more nuanced sale process that sellers must navigate carefully. Five Considerations for Marketing to and Evaluating Strategic Buyers Strategic business buyers often offer more capital and resources than their smaller counterparts, but they also bring a wealth of negotiating experience and are likely to drive a hard bargain. When approached by or marketing to a strategic buyer, small business owners should assess the deal from a variety of angles:
- Understand your company’s place in the buyer's portfolio: Unlike with most small business sales, strategic buyers won’t consider your company in isolation, but as a potential cog in a much bigger machine. It's important to know if your company represents a vertical or horizontal expansion for potential acquirers. When trying to attract this audience, specify how your business can help buyers generate new revenue or help shore up a weakness in their current operations.
- Prepare for the due diligence process: Strategic buyers bring more investment expertise to the table than most individual small business buyers, and with it a more intensive due diligence process. Ensure that all financial, intellectual property and legal records are organized and accessible before putting your business on the market. Low quality documentation can hurt your firm's valuation and turn off large acquirers that don’t want to inherit unnecessary risk.
- Examine the buyer's resources: As with any individual buyer, it's important to understand how a strategic acquirer is positioned to help your small business flourish. Access to capital isn't the only indicator of a good fit; a healthy marketing budget, established national or regional presence, and strong supplier relationships are all tools that can elevate the brand you built. With the right capabilities, a strategic buyer will make sure your business doesn’t just survive, but achieves growth goals that you never had the time or resources to accomplish on your own.
- Consider how your staff will be affected: Your business's success hinges on its ability to attract and retain passionate, qualified workers, but not every strategic buyer is worried about your staff’s long-term prospects. Depending on the buyer's goals and vision, they may plan to consolidate or replace your employees post-sale. Try to identify these plans early in negotiations and include specific terms in the final sale contract if keeping your staff intact is non-negotiable.
- Compare the buyer's company culture to your own: For you, your customers and your staff, finding a strategic buyer with a compatible culture may be more important than endless marketing resources. Many sellers have learned that sometimes stepping away from a deal is the smartest move, especially when the buyer's values aren't aligned with your firm's mission. At the same time, consider how your business will integrate into the acquirer’s brand identity. Is it important that your company ethos survives the sale, or are you content to let a buyer realign your culture to mirror its own?
Selling to a strategic buyer has its pros and cons, not to mention intricacies. For some small business sellers, corporate buyers’ capital, resources and industry experience may not always be worth the loss of their hard earned brand. For others, the ultimate sale goal could be to cash in on valuable IP or other value built into the business. No matter what outcomes you’re aiming for, asking the right questions is essential to demonstrate how your business can benefit the buyer’s portfolio, and what the buyer can do for your business.