How to get closer to a strategic buyer

Corporations are often on the lookout for complementary operations they can buy up and exploit. Getting on their radar may be simpler than you thought. By TOM McKASKILL.

By Tom McKaskill

Larger corporations are often on the lookout for complementary operations they can buy up and exploit. Getting on their radar may be simpler than you thought.

Strategic buyers acquire businesses in order to take advantage of some underlying asset or capability that the vendor has.

Generally the buyer recognises that they can achieve a higher return on the investment in acquiring than they could in seeking to develop the asset or capability themselves. Often it is a case of time to market where the delay in building their own capability is significantly outweighed by gaining instant access to a capability or asset they can exploit immediately.  

The nature of a strategic acquisition means that the buyer will embrace the acquired strategic asset or capability within their own business. That is, they will use their larger size to more rapidly exploit the asset or capability, often by replicating it within their own organisation or by selling it through their own distribution channels.

Given that most strategic acquisitions are used to enhance the revenue generating capability of the acquirer, it suggests that most strategic acquisitions occur within an industry.

It is very normal for large corporations to acquire emerging firms within their own industry in order to secure new innovations or specialised processes or knowledge. This being the case, the vendor who wants to identify a strategic buyer need look no further than the large corporations within their own industry.

The ideal strategic buyer will normally have complimentary or similar products, sell into the same or similar customers, use similar marketing and sales processes and have a track record of undertaking acquisitions.

To be a good strategic target they should also have a similar culture and have a good track record of meeting their investment objectives from prior acquisitions. With this set of criteria, the entrepreneur can readily develop a list of preferred prospective buyers.

Given that a large portion of acquisitions occur where there is a formal or informal relationship between the parties, the next task of the entrepreneur is to develop closer links to the prospective acquirers.

This objective is much easier than most entrepreneurs think. We need to remember that large corporations desire to undertake acquisitions and that they will have executives tasked with identifying targets and developing knowledge and perhaps relationships with those firms.

The job of the entrepreneur is to become one of those targets.

This can often be achieved simply by making contact with the M&A group and opening up a dialogue. Alternatively a first approach can be made to a local subsidiary CEO, a business development executive or a member of the board. Introductions can be made through the firm’s professional services firm, a local venture capital fund or a local investment bank.

If the prospective acquirer is reluctant to enter into discussions, the entrepreneur might try setting up an appointment at a trade fair, industry exhibition or through the industry association.

The aim of the entrepreneur should be to educate the prospective buyer on the future potential of the firm as well as to suggest ways in which the prospective acquirer might exploit the underlying assets or capabilities in the firm in a manner that is well beyond the firm’s ability to do so. Once the relationship is established, the major task of securing a future potential buyer has been achieved.

Tom McKaskill is a successful global serial entrepreneur, educator and author who is a world acknowledged authority on exit strategies and the Richard Pratt Professor of Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia.