How we find the right buyers for medium-sized companies

The most important thing at the beginning

  • For a successful company sale, the right number of interested bidders is crucial.
  • Depending on the location and industry of the company being sold, many data sources and extensive research are required.
  • Usually, both strategic buyers and financial investors, as well as family offices, are relevant potential buyers.
  • The most important criteria when selecting buyers are strategic rationale (reason for purchase), financial strength, and decision-making ability.

Not too many and not too few: but always just the right ones!

What are our objectives when looking for buyers?

First, it is important to identify truly serious and solvent interested parties for the company acquisition. Such investors are often not actively seeking investments. They therefore need to be made aware of a specific acquisition opportunity and convinced of it.

Second, too many bidders in a sales process are not advisable, as this can lead to unwanted publicity among employees, customers, suppliers, etc. Each bidder must be supported from initial information through to negotiations, which requires resources.

Third, our objective when approaching buyers is always to attract enough interested parties to organize a bidding process, while maintaining confidentiality and efficiency.

Which sources do we use for identification and qualification?

In the first step, we compile what we call a “longlist.” Here, we initially want to identify as many potential buyers as possible. In practice, we have a variety of data sources at our disposal.

Why we’re not fans of corporate exchanges

Only in exceptional cases do we use corporate exchanges like NexxtChange, DUB, and similar platforms for company sales. Such platforms can facilitate the search for a successor in smaller company successions. The experience of many users shows that the results are highly random. The strongest argument against corporate exchanges is that the truly relevant buyers of a company are usually simply not present there. Instead, there are unqualified, often only apparent potential buyers who lack sufficient financial resources. However, we use “professional” platforms from M&A advisor to M&A advisor because this ensures anonymity and allows for verification of purchase interest.

Which criteria are important for assessing buyer interest?

In the next step, we work with the sellers to select the shortlist from the longlist. This means we determine the names of those potential buyers we will then actually approach. The following criteria guide us:

  • Purchase Motives/Strategic Rationale

For what reason and with what motive will a specific bidder purchase? What is their “story” with this acquisition? In which area will they be able and willing to achieve added value and synergies? Initial clues can be industry affiliation, company size, or regional aspects. Are suppliers, competitors, customers, or employees possible? Analyzing the so-called “strategic rationale” requires both a deep understanding of the business models of the target company and the buyer, as well as sound market knowledge. But “out-of-the-box” thinking, creativity, and unconventional approaches can also lead to potential buyers who were previously unattainable.

  • Financial Strength

Do the company’s size and financial metrics match the expected purchase price? We obtain and analyze information early on to allow for an assessment.

  • Decision-making Power

Is the buyer likely to be open to the specific acquisition opportunity at this time?

What is better: a strategic buyer, a financial investor, or a family office?

Strategic Investors

Strategic investors typically operate their own business in the same industry as the company being sold or in a related field. Strategic investors usually do not actively and systematically seek acquisition targets, but rather react when they are made aware of attractive acquisition targets and are convinced. Therefore, the seller should actively identify strategic investors and approach them through the appropriate channel.

Procedure for Finding Strategic Investors

Strategic investors are generally interested in realizing added value through synergies for their own shareholders. For this reason, it is particularly important for the selling company to make synergy potential as transparent as possible to the buyer.

Financial Investors

Sellers are seemingly spoiled for choice when it comes to financial investors: More than 1,000 financial investors in Germany now report being on the lookout for medium-sized acquisition targets. According to the press, these investors had more than €24 billion at their disposal for acquisitions in 2021. Investors even complain about excessive “investment pressure.” Almost every entrepreneur regularly receives form letters from investors who are supposedly willing to buy. So, are these times bright for sellers?

The less good news, however, is: No, by no means every shareholder in medium-sized companies finds a suitable buyer among financial investors. Why is that?

The criteria of financial investors are often very narrow and restrictive. In addition, the search criteria are often extremely similar. Anyone who doesn’t fit the search criteria is therefore quickly eliminated.

The upside: If you approach the right investors, meet their criteria, and organize the sales process correctly, you can expect a (very) attractive sales price and a quick and secure sale.

We have therefore built our own investor database. We keep detailed records of which investors want to invest, in which size, in which industry, in which company situation, and with which time horizon.

This allows us to very quickly filter out which investors are suitable.

Different types of financial investors

High-net-worth private investors/family offices

Family offices have become increasingly important in the corporate investment markets in recent years. Many wealthy entrepreneurs have established their own investment acquisition organizations (“family offices”) and are now active in the market. Such investors are often reserved in their communication and external appearance and are therefore not easy to find. They vary greatly in their level of professionalism and often (but not always) invest in sectors related to the investor’s original business activity. Other relevant investment criteria can include personal relationships or regional proximity to the target company. The advantage of family offices is their often extensive entrepreneurial experience and approach, as well as their long-term perspective. However, this does not always lead to the highest purchase price offers.

TIP: Talk to potential buyers simultaneously, not one at a time, in a structured process. This optimizes the purchase price and negotiating power.

If you need advice, please feel free to contact us confidentially and without obligation. We will find the right potential buyers for your business!

More articles