In today’s market, it’s rare for a good business to go unnoticed. As a result, acquisitions have become increasingly competitive, and so too has the need to differentiate your offer. Moderated by Barb Shander of Morgan Lewis, the first monthly breakfast meeting of 2018 was held at the Union League this past Friday, where expert panelists from the region discussed a few key differentiation strategies on how to get from LOI to closing.
The goal here is to develop a more personal relationship with the seller, which sometimes can happen before the process even begins. Michael Probst of Teleflex says that they start tracking target companies at inception, which allows them to start cultivating a relationship with companies well before they go on the auction block.
CONSIDER TRYING SOMETHING NEW
As a financial buyer, it has been increasingly hard to be competitive without sweetening the deal in some way. This may take the shape of a shorter closing period if you have the resources or lowering future benchmarks when you are optimistic about growth opportunities. According to Sasank Aleti at LLR, if a business has high visibility into achieving projections and has a durable business model, they might consider allowing the seller to rollover less proceeds and cash out more in order to remain competitive in the process.
SHOW THAT YOU ARE COMMITTED
As mentioned previously, this could mean dedicating more resources early on in the process. Aleti of LLR described a strategy of doing a deep dive into a specific sector, developing a detailed thesis and recruiting a CEO or Senior Operating Advisor familiar with the industry prior to any potential deal. He explained that if you have experience in the seller’s niche, not only can you speak the same language, but also assure the seller that their company is in good hands.
PROTECT YOUR DOWNSIDE
This is key in all private equity deals, and for that reason Representations and Warranties Insurance (RWI) has been gaining popularity in recent years. In fact, according to Brad Armstrong of Lovell Minnick, an RWI policy has been in place on approximately 50% of their deals. Why the surge in policies? Sean Crnkovich of Marsh estimates in the last 3-5 years, the number of providers has increased by nearly 200%, driving the cost of policies down dramatically. Armstrong commented that these days RWI is almost table-stakes.
WHAT YOU NEED TO KNOW
Acquiring a business is very similar to building a relationship, and while competition for those businesses can be great, it’s critical to be able to differentiate yourself from your competitors. If you are able to get ahead of the process, convey your commitment to the seller, and put safeguards in place to protect your downside, you will be in a good position to thrive in any market.
Thank you for our breakfast sponsors: RSM and TD Bank