South Florida M&A Advisors Podcast

EP #13: Finding Serious Buyers: The M&A Strategy

• Russell Cohen • Season 1 • Episode 13

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The mystery of how businesses actually find serious buyers is revealed in this candid exploration of M&A strategy. Forget everything you thought you knew about selling a business - this isn't about listing it online and hoping for inquiries. Russell Cohen pulls back the curtain on the sophisticated methods M&A advisors use to connect sellers with qualified buyers who will pay premium valuations.

Discover the substantial investments advisors make in specialized research platforms - from Private Equity Info to Pitchbook, Source Scrub to Grata - each costing thousands annually but providing crucial access to buyer information. Cohen explains how these resources allow advisors to identify private equity groups, family offices, and strategic buyers that match a seller's specific industry, size, and objectives. Beyond the technology, learn how professional relationships developed through organizations like ACG and M&A Source create direct connections with decision-makers at acquisition-minded companies.

The conversation highlights a critical reality for business owners: attempting to sell without professional representation severely limits your options and leverage. When sellers rely solely on their immediate network of accountants and lawyers, they access less than 1% of potential buyers. As Cohen colorfully illustrates, negotiating against professional buyers without representation is "like a junior high football player trying to sack Tom Brady." The right advisor not only maximizes your valuation through competitive bidding but helps identify buyers who represent the best cultural fit and growth opportunity. Whether you're seeking a complete exit or a "second bite of the apple" with future equity participation, hearing these insider insights could be worth millions in your upcoming transaction.

Speaker 1:

Welcome to the South Florida M&A Advisors podcast, your trusted M&A team. Here's your host, Russell Cohen.

Speaker 2:

Finding the right buyer for a business is not luck, it's strategy. Today we're talking about how M&A Advisors actually connect with serious buyers, from private equity to strategic acquirers. Russell, most people probably think that when it comes time to sell a business, you list it like you would a property, maybe on MLS, and hope that somebody bites. And you and I know that really, it couldn't be further from the truth. So what does it really look like behind the scenes when you're trying to find the right buyer?

Speaker 3:

You know that's a great question. You know, if you're trying to sell a smaller business, that's exactly what a business broker would do. They would list it on many different websites and the buyers would flow to them. You know, inquiring by email, that does not work for M&A. That does not work for M&A. In M&A you have to spend some. You know, probably $30,000 to $50,000 a year in subscriptions that you'll be able to search and try to find the private equity group or family office or strategic buyer. So that's kind of. You know if you're going to have your toe in the water, you know you might. You might spend for one service, but if you're really truly going to be able to give your client the most competitive multiple bidders, then building your buyer list, you've got to have a lot of different subscriptions to you know to get, get as many buyers and get the best price, of course, so how early in this process do you start building a buyer list?

Speaker 2:

Is this something that well, I'd imagine you probably you've been doing this a while. You have a giant resource directory of these things, but like, is that groundwork typically laid before the business even goes to market, or how does that typically work with the buyer list?

Speaker 3:

When you're meeting with a seller and if you want to show some competitive advantage, you could start building that list really early and share the list in person. You don't give the list to the seller they haven't signed up with it but you could show them the amount of private equity groups or strategic buyers that you plan to reach out to and that could help you get the engagement. A lot of the times. If we're not doing that and that could help you get the engagement A lot of the times if we're not doing that, we wait for the seller to commit. No need to spend so much time researching buyers if they haven't committed to your company. So the buyer list typically is done after the commitment, because there's a lot of time in between getting the executive summary together and going out there and putting the list together and then finally reaching out to the private equity group. So there is probably a good 30 days that you can really go out there and search for buyers.

Speaker 2:

So you referenced spending tens of thousands of dollars in access to these resources, so I want to dig in a little bit into that. What specific platforms or databases do you turn to when you're sourcing private equity or strategic buyers?

Speaker 3:

for M&A advisors is private equity info and what that is is a database of private equity groups that have made platform investments where you can do the research and you can see what type of add-ons that they're looking to do and where they're focusing their verticals on. So it's very user friendly. Private equity info probably could range from two grand to five thousand dollars a month very easily and that's one of the sources I use and we get at the M&A Source, which is a national organization. If you join the M&A Source you get it for free. So that's an incredible benefit. So you don't have to spend that money, you just have to join.

Speaker 3:

Pitchbook is very well known in the M&A industry. There are minimal requirements. You got to buy three licenses and that will cost $30,000 plus. So if you're just a one person M&A firm that you won't buy it because you have to buy three licenses and you're not going to even use the license. So usually the larger M&A agencies' advisors are you know it's multiple M&A advisors would buy the pitch book. Tagnify has recently come into the marketplace and it's kind of a competitor to private equity info and private company data and they're only charging $500 a month if you want to go month by month. So that's kind of a. It's a very fair cost because you don't have to commit tremendous amount of dollars and if you pay for a year or a friend, you'll be able to get a a little discount.

Speaker 3:

Um, on the on the private company data, there are source scrub and grata and I could tell you for a fact source grub runs about twenty thousand dollars a year, which gets expensive, right? Uh, my firm is currently using source scrub, uh, grata. Uh, these are all private companies. If you're trying to find strategic buyers that are in the space already and you know that would be, you know, instead of private equity, let's say, if you're selling a printing company, another printer would come in and buy it. So you've got to have the ability to source around the United States, maybe even outside the United States. So Grada, easily $15,000 to $20 20 grand if you're not part of any buying group.

Speaker 3:

You also have Apollo IO, which is another private company data information that can run a couple of grand. You got Zoom info and they all put limits on how much you could download. But one of the most positives about these private company data companies is you know you could try to these private company data companies is. You know you could try to get the company data for your buyers, but you could also use it on reverse to market the sellers. So so you know. So it's just not a buyer search. If you're focusing on, let's say, roofing companies, like I've done in the past, I can pull up all the roofers, let's say in the state of Florida. I can, I could target market. So those private company data Apollo, zoom, zoom, info Source, grub Grata are you kind of can work in both ways. So yeah, so it can get really expensive and you know a lot of people don't have unlimited budgets.

Speaker 2:

Yeah, obviously lots of resources out there, so like there. So I got the wheels churning in my head about obviously, the larger the firm, the more access they have to these resources, right? So is it safe to say that if you're a smaller business, it would make I don't know how the commission structure works for the M&A advisor but is it safe to say that for a smaller business they might pair better with a a smaller boutique type firm, whereas if you're doing a larger deal, it would make sense to do it with a larger business, or how does that typically work? What are some of the advantages and disadvantages to working with a larger entity versus a more, uh like, localized boutique type shop?

Speaker 3:

yeah, listen, I consider myself a boutique m a. So yeah, um, you know, so I'm not sitting with 20 different advisors, but you still?

Speaker 2:

have access to a lot of these.

Speaker 3:

I got these subscriptions, I got the power of a larger M&A agency.

Speaker 2:

With the personal nature of dealing with somebody.

Speaker 3:

The best of both worlds essentially. You get the best of both worlds With you, Russell.

Speaker 2:

we always get the best of both worlds, that's right.

Speaker 3:

You're hiring me and you're getting a boutique-style M&A firm and we have the sources that a larger company would have because we've made the investments in those. In order to be an M&A advisor, you've got to have it. You know you can't have your toe in the business like many people are doing these days. So it's very important. And, just to mention, there's a couple of different ways, creative ways to find buyers. You could join ACG, which is kind of like a middle market association, and they have something called DealMax, which is kind of like a middle market association, and they have something called DealMax. Every region of ACG network has kind of like a deal market where they have like a conference once, twice a year and they get all the private equity groups to come down to these conferences. And I mentioned M&A Source. We have a conference. I'm on the board of governors at M&A Source and we have two conferences a year. So I just came back from Orlando back in May and we had a deal market and we had over 40 private equity groups sitting at a table where I can carry on a conversation one on one, explain what I have, what I have now, what I have coming and, most important, we're building these relationships with.

Speaker 3:

You know, when you first start, you didn't know any of these private equity groups and they all keep coming back. And now you know, five to seven years later. You know, I know these people by first name. I, I know what they're looking for. Uh, we are, we're building relationships with these private equity and they want that because they want us to call them when we get that opportunity. So, yeah, so as you dedicate more time, you get to know the private equity groups. There's 8,000 of them. You'll never get to know them all, but a handful of them. You'll be able to know them by first name and understand what they're looking for.

Speaker 2:

Yeah, I mean that makes perfect sense. Kind of leads me to the next question I had, which was and I'm just based upon what you just said it seems pretty obvious that having these relationships with these private equity groups it seems to be, I don't want to say, more important than the various resources and tech you have to find buyers. But it seems like you have to strike a nice balance between these personalized relationships with these large groups and also having access to all these platforms to get view and get access to those that you don't have relationships with, so you can connect with them and then build. That's right?

Speaker 3:

yeah, because I, if I know, 50 private equity groups by their first name doesn't mean that they're investing in the space. So you know, you know, once you join these type of associations, we're getting emails by private equity groups, family offices, on a daily basis. So we're building our own database of reach out on top of the search that we do.

Speaker 2:

Once you have this resource directory and you have all these resources, obviously there's, like you said, now there's people that are reaching out to you. What's your approach to filtering out, like time wasters, those that really aren't necessarily qualified, and and really zeroing in on the serious buyers? Like how do you filter through all this?

Speaker 3:

yeah, I mean listen what we're carrying on these conversations. We want to know if they're funded. You know, if they're a funded private equity group, that means they already raised the money from their investors and and they got a fund, uh, ready to go, uh, with dry powder and and typically, uh, a private Equity group is only going to put 30 percent of whatever the down payment in the, in the acquisition. They're only going to put 30 percent and then they're going to get leverage so they don't um, you know they don't use a hundred percent of their down payment money right from the fund. It's a leverage play, no different if you're selling a small business and a private individual is using SBA. So that's the way it is.

Speaker 3:

Private equity groups do provide probably a 70 to 80% cash out position, but they're actually not using 100% of their own cash to fund the down payment. So you need to understand that. If you don't understand that, you really don't know the basics of private equity and beware of the advisor you hire. You know. So, yeah, that's the way it is. You know, when I was new I did not know that. So you know, you learn by getting educated and going through a few deals and going to all these conferences and getting educated, and so you could be better for your, for your seller, and getting educated.

Speaker 2:

So you can be better for your seller, what would be something that instantly turns buyers off?

Speaker 3:

even if the business looks great on paper. Yeah, I mean, you get a perfect example an EBITDA of $2 to $5 million. Problem is they'll be turned off automatically if it's in a space that they're not interested in, if they don't want to buy a franchise chain, let's call it that way. Not many private equity groups want to be in the restaurant business, so that's a turnoff, you know. If they have a vertical in construction, well they're not going to want to buy an industrial manufacturing company. You know what I mean. So those are turnoffs like instantaneous, a lot of times when I totally not interested, like turn off, you know, and they'll tell you what they're not interested in. And a lot of times these private equity groups, you know they have multiple platforms going up, so they're adding on companies that match the platform investment.

Speaker 2:

Let's go to some real life examples here. Can you share with us an example of a situation with a deal where you had to get creative and go outside the usual channels to get the deal done?

Speaker 3:

yeah, there was a time, many years back, where I was selling an online company and I couldn't get, couldn't get through to the uh, the one of the buyers that I was really targeting, uh, so I decided to, you know, walk in the door, you know. So, hey, let's, let's go directly to them and and work my way through, so that that's, that's a creative way of trying to get to the buyer. You, you know, typically we're reaching out by email, sending, sending the teaser uh, we are. You know, sometimes there's some phone follow-up to you know, to see that. But, you know, the kind of like get in front of someone that way is pretty unique, you know. But it would have, obviously, all these buyers could be around the country, so that would be difficult to do this. This scenario was a local South Florida company.

Speaker 2:

So how common is it in your industry to have smaller businesses, I guess like under 10 million deals or even smaller, maybe a million, $2 million deals where the owners aren't using a broker right, they're going about it on their own. And then for those types of scenarios, what do business owners typically get wrong about? How buyers are actually found?

Speaker 3:

Yeah, that's a great question. You know they're probably tapping their network of accountant and lawyers and who they know and that's a very you know less than you know less than 1% of the marketplace. So they're really limiting themselves. I mean it may work, I mean you know, but it chance or won't work. So if you're trying to get the most eyes on the prize and that being your business, you know you get to an advisor. You know advisor like myself. Where we can, we can find you know many private equity groups, many strategic buyers depending on your industry and just by reaching out to your accountant and attorney because you don't want to pay a commission, well, you know it will be made up really well between your accountant and your attorney when they get involved in the deal. So, yeah, you're short selling the value of your company because you haven't created enough stir and competition to the deal and you're eliminating your worldwide marketplace. Just because your accountant and attorney are great people doesn't mean they know everyone.

Speaker 2:

Is that something that's common, though, for these smaller businesses, or would you say that a majority of them?

Speaker 3:

if they're going to sell, they typically will get an advisor on board yeah, I mean, if you're an m a deal, you should have an advisor.

Speaker 2:

Well, yeah, it seems fairly obvious, but I know there's a lot of people that are looking to cut corners and save costs and think you know people think they could do things on their own. Uh, obviously, from where I'm sitting, you want an expert on your team. But how common is it for business owners with smaller, smaller businesses, um, maybe would say on the smaller businesses, maybe you know under 500,000, they might.

Speaker 3:

They try to do it on their own. You know, on an M&A world, you're dealing with professional buyers. You know these people who are part of private equity. You know they went to really incredible schools. They started in private equity, they started from the bottom and they're working their way through. You know, almost you know a lot of them own these private equity companies. So they do this for a living. Okay, it's like. It's like.

Speaker 3:

Let me give you a football terms Tom Brady is the professional buyer and the junior high football defensive lineman is the seller. Okay, you have no chance. Okay, you have no chance to sack Tom Brady. Because because these guys, you know these private equity buyers know their business and and they they're professional, but because they know their business, you can be taken advantage of. And, most, most important, the competitive nature of getting the best price is important. Uh, but not always the price is important. That I learned. Sometimes it's the right fit, culture-wise, with the private equity group and and owners trusting each other with the buyers, that they can see the growth of their company. Um, most people want, want the money, and some sellers want the second bite of the apple, getting a good private equity group in there and letting their company grow to levels they never thought, and then selling the business seven to 10 years and making more money. So I learned very well that it's just not about the money, it's the individual person, what their goals are.

Speaker 2:

Yeah, for sure. What else Did I miss anything here? What am I leaving out here?

Speaker 3:

I think we covered it all. A lot of these subscriptions are important, but you got to do a lot of networking. I'm currently a member of ACG M&A Source. I've taken a position on the Board of Governors as the membership chairperson. So, yeah, you want someone that's active in the space, that is always getting educated and a real commitment to their profession, and that's you know. These are simple questions that you could ask any M&A advisor that you're interviewing.

Speaker 2:

All right, very cool, so we shall leave it at that. Very good stuff. As always, important to get a trusted professional to come in there and help you with these complicated, complex transactions. So everyone, thanks so much for tuning in and if you found this useful, don't forget to like, subscribe all that fun stuff. You know the drill. Appreciate you joining us and we will catch everyone next time on the next episode of the South Florida M&A Advisors Podcast. Everyone, take care, have a great day.

Speaker 1:

Thanks for listening to the South Florida M&A Advisors Podcast. For more information, visit SouthFloridaMAcom or contact 954-646-7651.