Why actively pursuing not-for-sale companies can lead to a better acquisition than a for-sale opportunity.
When searching for acquisition prospects, most people only consider for-sale acquisitions. Usually these are offered by investment bankers, who carry a “book” of candidate companies. Restricting your search to for-sale opportunities is usually a mistake. I encourage clients to actively pursue not-for-sale deals.
This may seem a little crazy. Why go after a company that is not for sale? The owner is clearly not interested in selling; if they were, the company would be for sale. I’ll let you in on a secret, confirmed by multiple transactions over many years. Every company is for sale — for the right equation. When a company is “not for sale,” it simply means it isn’t actively seeking a buyer.
If during your acquisition process you identify a company that meets your strategic acquisition criteria but is not for sale, you should still pursue it. If you find the best candidate — go after it! You may find the owner is more receptive than you think.
There are a number of reasons to consider not-for-sale acquisitions.
1) Be proactive rather than reactive: Pursuing not-for-sale deals puts you in a proactive, rather than reactive position. Instead of waiting for a deal to come to you, you approach the prospects that offer the best fit with your company.
2) Maintain stealth in the marketplace: You can keep your acquisition search hidden from competitors. You also will gain access to acquisitions none of your competitors are aware of because the prospects you are looking at are not advertised. Another bonus: you can avoid auctions, which often drive up price.
3) Maximize your options: If you only pursue for-sale acquisitions, you are ignore a large number of profitable, viable acquisition prospects.
4) Pick Winners: Companies that are not for sale are usually in good shape. Management teams are actively engaged in a successful business and are not looking for an exit. They may be happy to stay on (if you want them to) once the acquisition is complete.
How do you convince an owner to sell a company that is “not-for-sale”? There is an art to this. You must find the right equation that will motivate the owner to sell. Note the word “equation” — surprisingly, price is only one factor, and may not be the most significant. It’s even possible the owner has already said “no” to a generous cash offer. Many other factors, including timing, reputation, family issues and legacy may motivate an owner to sell.
Your task in approaching a deal of this kind is to present a vision that matches the owner’s dreams and ambitions. Even though you are the potential buyer, you have to begin by “selling” the deal to an owner who may not have considered surrendering control.
Find out what is most important to the owner. Is it reputation in the community? Keeping family members in the business? The management structure? Environmental issues? Fulfilling a dream of growth and impact? Once you’ve identified the owner’s top priorities, address them head-on when proposing acquisition. By demonstrating you understand the owner’s unique needs and desires, you can often persuade him to relinquish his “not-for-sale” company to you.
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