Hello again. This week I thought I would talk again about business acquisitions. I have posted before about the benefits of companies and individuals getting on the front foot and having a company like Switch actually target a specific company, or companies in a category, rather than wait for the faint possibility that one might hit the market.

This is not generally an accepted practice by most brokerages. In most cases the tried and true methodology of vendor led transactions is the norm. I am not sure if this is the most effective methodology in the market we are currently in though because it seems that these businesses are often hitting the market at pricing levels that don’t actually reflect the market condition. Brokers are being pushed into valuing the business at unrealistic levels just to get the listing.

Whereas with a broker working for the buyer approaching a targeted company the transaction is more likely to reflect the current conditions. Obviously the owner of the business doesn’t have to engage or accept any offer but they also don’t have any fees or advertising payable to the broker because the buyer is paying. It is a less stressful process for the current owner because the business never hits the market, the process has a better chance of staying confidential and there is obviously a very motivated buyer because he/she engaged the broker in the first place. Seems like there have been prospective buyers listening. We now have in the last 4 weeks or so since the 21/9/09 post, and last week’s blog being published in The Herald, (David Newport: Deluge of businesses to hit market) have had 5 clients engaging us in this manner.

These range from an individual looking to purchase a specific company circa $100k through to a corporate wishing to purchase several businesses in a category between $5-30million enterprise value.

The benefits for the parties in this process are many, as I have previously stated in 12/5/09 Growth by Acquisition and 21/9/09 Benefits of 'Growth by Acquisition' posts. It is also a lot more efficient than trolling the businesses for sale pages in your local paper each week hoping that a specific business or one involved in a specific category might hit the market.

We have many times in the last 5 years or so talked to buyers who have been looking for a business to buy and not been able to find one through the normal channels. Some of the guys are still looking and in a lot of cases are chewing up capital in their search. So if this is you then maybe you need to change the approach and get on the front foot. One of my favourite quotes which covers this thought is from Albert Einstein who once said “The definition of insanity is doing the same thing over and over again and expecting different results”.

Get on the front foot and give us a call.