Hunting – Using Targeted Campaigns

Is your business likely to be sold to a financial buyer, strategic buyer, or industry buyer? A key consideration for developing a marketing campaign and deciding which groups of buyers to target is the size of your business. 

• For small businesses most likely to be sold to an individual, confidentially marketing your company on specialized portals is the most effective strategy. 
• For mid-sized businesses or those most likely to be sold to a financial buyer, strategic buyer, or industry buyer, a targeted campaign is the most effective.

With a targeted campaign, your broker will reach out directly to potential corporate buyers – many M&A advisors call this a private auction. This involves compiling a list of potential corporate buyers and then contacting them directly through emails, letters, and phone calls. Corporate buyers can also be targeted through select trade publications.

There are advantages and disadvantages to selling your company to a corporate buyer or competitor, so it’s important to proceed carefully. But targeted campaigns are not recommended for every company. 

In certain industries, a competitor or corporate buyer may pay significantly more for your business than an individual buyer.

Advantages and Disadvantages of Targeted Campaigns

Consider these points before proceeding with a targeted campaign:

Advantages of Targeted Campaigns

• Experience: A corporate buyer may already be familiar with the industry and marketplace and will likely be motivated to purchase your business as a means of expanding their market share. 
• Knowledge of Industry: A corporate buyer may be more knowledgeable about what it takes to purchase a business. This means the transaction may go more smoothly than would be the case with an individual buyer who has never owned or purchased a business. 
• Price: In certain industries, a competitor or corporate buyer may pay significantly more for your business than an individual buyer.

Disadvantages of Targeted Campaigns

• Confidentiality: It can be risky letting your competition know that you want to sell your business. 
• Low Probabilities: In some industries, the probability of selling to a competitor or corporate buyer may be lower.
• Price: In certain industries, a competitor or corporate buyer may pay significantly less for your business than an individual buyer. This situation is especially true if it’s easy for the buyer to replicate your business at a lower cost than your asking price.

Determine if a Targeted Campaign Is the Right Approach

The size of your company and the likely buyer are also considerations to keep in mind.

Size: Selling Small vs. Mid-Sized Businesses

• Selling a Small Business: Small businesses – those with less than $5 million in annual revenue or less than $1 million in EBITDA – are purchased by individuals 90% of the time. Companies account for the other 10% of such transactions. Targeted campaigns are suitable only for a select number of smaller businesses.
• Selling a Mid-Sized Business: Targeted campaigns are almost always suitable for middle-market businesses with EBITDA greater than $1 million per year.

Negotiating with competitors also tends to be a much more rigorous process than selling your company through ad portals. Competitors are often more difficult to deal with than industry outsiders. For example, they are much more particular about the language in a non-disclosure agreement and may attempt to learn the identity of the company without signing an NDA. You should also have your attorney on standby to manage revisions to the non-disclosure agreement, letter of intent, and purchase agreement, if necessary. 

Buyers: Individuals vs. Corporate Buyers 

• Individuals: Individuals are more likely to purchase small businesses. The most efficient and cost-effective method of contacting individual buyers is through targeted forms of media such as web portals and trade journals in which individuals have identified themselves as potential buyers. In other words, this group of people has already been corralled for you, thus making the process more efficient and cost-effective. 
• Corporate Buyers: Companies are more likely to purchase mid-sized businesses. Most corporate buyers are looking for businesses that generate at least $10 million in annual revenue. There are always exceptions. For example, in mature industries where growth is a zero-sum game, such as landscaping, competitors regularly acquire small businesses.

Types of Corporate Buyers

Here are the different types of corporate buyers:

• Direct Competitor, Different Geography: The business is in the same industry, and may be looking to expand into your area. 
• Direct Competitor, Same Geography: The business is in the same industry and same geographical area as your business. This is common in “zero-sum” industries where the industry is no longer gaining market share, or growing, and competitors are fiercely competing for market share, such as commercial cleaning or lawn care. In these industries, it’s often more cost-effective to acquire a competitor than attempt to steal market share from a competitor through advertising.
• Indirect Competitor: In this instance, the buyer may be interested in expanding into a new market or selling their products or services to your existing client base. For example, a food distributor may be interested in purchasing a food manufacturer. Rather than build a business from scratch, they may be interested in simply acquiring your company. If you choose to approach a company you think may have this synergistic potential, be prepared to clearly and concisely demonstrate the potential and competitive advantages of your business.
• Customers: Often, your best customers are your biggest fans. They promote your business within their circle because they like what you offer. They may make large purchases regularly, or they may have approached you about business deals, offers, or opportunities in the past. Don’t overlook this critical group of potential buyers.
• Suppliers: Businesses will commonly acquire other companies they are already connected with in some fashion. Rather than outsourcing their product or service to you, it can be more profitable and part of their acquisition strategy to bring your services under their corporate umbrella. This type of acquisition can complete the value chain for a company expanding into new industries or areas.

The Ideal Corporate Buyer

Here are the characteristics of the ideal corporate buyer:

• Experience: The ideal corporate buyer has made previous acquisitions. Approach only those targets that are ready, willing, and able to take action. You will know this by researching the company and determining how many acquisitions it has made in the past one to five years. The more acquisitions or companies the corporate buyer has made recently, the more likely it will buy another company.
• Size: The corporate buyer should generate at least $10 million in annual revenue and be at least three times the size of your company. An overwhelming majority of smaller companies are not ready, willing, or able to spend millions of dollars to purchase a competitor. There are exceptions, but in general, only mid-sized and larger companies grow through acquisitions. Be particularly wary of smaller companies with revenue of less than $10 million per year that contact you. Why? Smaller companies tend to be busy putting out fires and chasing the next big customer rather than proactively creating a team focused on developing and executing an acquisition strategy. While these deals do sometimes happen, the ideal corporate buyer will generate at least $10 million per year in revenue and be at least three times your size. If your company generates $5 million per year in revenue, for example, the ideal buyer should generate at least $15 million annually in revenue.

Process for Targeted Campaigns

When Morgan & Westfield conducts a targeted campaign, we first work with the seller to prepare a list of potential buyers, including corporations and competitors. It’s helpful if you prepare a preliminary list of companies you believe may be suitable candidates. You know your industry best and are in the most suitable position to compile the initial list. Your broker can then expand the list and research contact information for any companies you have provided or that they have discovered. I recommend first researching direct competitors, then any indirect competitors, and finally any companies in related industries.

The preferred size of the list depends on the type of business and your industry. An ideal roster should include at least 50 to 100 names. Smaller lists may sometimes be sufficient if the interest level of the names on the list is high or if the companies have aggressively pursued you in the past.

Your broker will then send the buyers a “teaser” profile on your company to pique their interest. The teaser usually contains a non-disclosure agreement to sign if the buyer would like to receive more information on your company. The confidentiality of your business is maintained throughout the process as the teaser profile doesn’t disclose your company’s identity. 

Targeted Marketing in Publications 

An alternative to approaching buyers directly is marketing in publications such as trade magazines.

Here are the types of publications that might be suitable for marketing your business:

• Trade publications
• Other publications that target potential buyers for your business, such as medical journals for a medical-related business
• Online blogs or forums
• Any other publication whose readership consists of your target market

How much do most publications charge? 

This varies considerably depending on the industry and the publication. Rates can range from as low as $50 to as much as thousands of dollars for highly targeted national publications.

Can this be combined with other marketing methods? 

Yes, I recommend marketing some businesses using multiple methods.

Do you always recommend this approach? 

No, this strategy is generally only required for highly specialized businesses.

What kind of responses are expected? 

This varies greatly depending on the publication and its readership, so this is difficult, if not impossible, to predict.

If they’re not coming to you, you may need to go to them.