Strategy-First M&A

Of course, any business buyer should first formulate their acquisition strategy before going out and seeking potential target candidates.  They also should formulate a clear post-transaction strategy for businesses they seek to acquire. 
 
For the seller, finding the right buyer via a “strategy-first” approach is a little dependent on the overall objectives of the seller.  If getting the top-selling price is the highest priority, business sellers should run a broad, professional, competitive process.  There are however situations when a strategy-first approach might be more appropriate.  By this, I mean when the seller is seeking a buyer/investor that 1) brings a specific strategic fit to the deal, whether that is access to markets, resources, etc., and 2), the strategic fit is more important to the seller than getting top dollar.

Deciding on the right priorities before engaging in a discussion with potential buyers or hiring an investment bank to run a process is a critical first step.  Once a seller has decided what his/her highest priorities are, then the decision on what approach to take is a little easier. Here is a link to the types of questions you should answer before you start.

When the strategic fit is the sellers’ highest priority and when there are only half a dozen or more buyer candidates, a limited sell-side process may be appropriate.  When the strategic fit is critical and there are very few suitable candidates, the seller is in a delicate position.  Approaching a buyer directly to explore whether they are interested in acquiring your business can be a little intimidating, particularly if there is no pre-existing relationship.  If the buyer candidate is a direct competitor or a potential future competitor, it can put the seller in a precarious position.

However, establishing a working relationship with a potential buyer can be a non-threatening way to explore the strategic fit between the buyer and the seller, without the seller even exposing that they may have an interest in an eventual sale.  Without explicitly outlining that a sale might be considered, potential sellers should look for ways to build a commercial relationship as a first step.  Of course, once a trusting relationship has been established, it can be easier to explore synergies, business strategy, cultural fit, etc.

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