24 Nov Some Key Factors for Corporate Buyers
There are several key factors in planning to buy a business, most of which are necessary to achieve a successful closing. Just as a seller has to deal with quite a few factors, the acquirer must also. Some of the more important ones for completing strategic acquisitions:
- Sufficient financial resources to complete the deal — For deals in the lower middle market that means that you probably need at least 20% to 50% of the contemplated deal in cash for the down payment and working capital.
- Management depth — You need to have enough capable staff members to run the existing business and also execute an acquisition at the same time. Planning and executing the integration of the acquired company is the biggest factor in the success or failure of an acquisition.
- Acquisition strategy — A rational approach to the type, size, and geographic location of target companies.
- The willingness to “pay-up” for strategic acquisitions such as 6x EBITDA and, if necessary, the willingness to pay 100% cash, whether it’s an asset purchase or a stock transaction.
- Patience — Assuming the acquisition search generates satisfactory deal flow, a willingness to stay the course for 6 to 18 months in the search process.
- Buy-in from key stakeholders — A confirmation by the partners and/or board of directors of their commitment to complete a deal.
- A “point person” in the search process — preferably the CEO, CFO, or Director of Development who is reachable by the M&A advisor on a daily basis to discuss relevant matters.
- Complete access to the sales manager and others by the business intermediary to discuss suggestions of target companies.