25 Feb Why should I use a boutique M&A firm to help me buy a technology business?
Many successful companies plan to buy other businesses to accelerate their growth and execute on their strategy. But finding the right acquisition target and closing a transaction takes time, money, and specialized skills. These truths are amplified in the fast-changing technology world, where there are unique factors that affect deal making. You must decide between using internal resources and outsourcing to an experienced M&A firm to locate target companies and handle the transaction.
If you can do it yourself, why should you consider engaging an M&A firm? Hiring a buy-side M&A firm is a cost-effective solution for many companies looking to grow through acquisition. For one thing, you’re getting a team that’s active and works in the deal market every day. A buy-side advisory firm has in-house business development people and skills that are always looking for opportunities. Austin Dale Group, a firm that specializes in IT services and software, may already have information and contacts that you can leverage to drive proprietary deal flow. Also, we understand the unique factors that affect valuation, due diligence, and company integration that are critical to successful transactions.
Another advantage of hiring an M&A firm is their compensation is based on a success fee with a nominal monthly retainer. That means the firm really only gets paid when you close a transaction. Compare that to the salary and benefits that you will incur for an employee, who may or may not bring you deals. The average compensation package for a business development associate is over $85,000. Add a few years of industry and deal experience and their annual compensation can easily exceed $150,000. Even if you hire that person, you aren’t guaranteed they will close a transaction for you. Compare that to engaging a firm like ours, paying a nominal retainer to minimize your upfront acquisition costs, and only paying a success fee when a transaction is completed. Essentially, you are limiting your overhead, but with all the upside. In order to be perfectly aligned with our clients’ financial interests, our success fee is calculated as a percentage of the REVENUE ACQUIRED, rather than as percentage of TOTAL DEAL SIZE. This alignment ensures we’re on the same side of the deal and not incented to drive up the price.
As a buyer, you know what you’re looking for in terms of company size, location, technology, services, and customer demographics. A targeted buy-side engagement can reveal opportunities that are not on the market so you can assess a fit without investing lots of time and money, and often avoid competitive bidding situations. You may not have the time to prospect the whole market and qualify every company that may fit your criteria. Hiring an experienced deal team who knows how to pre-qualify and vet potential candidates saves you valuable time while you focus on your existing business until a good target is in sight.
It may take several months to find the right acquisition target, but that’s less than half the battle. You still have to motivate the owner to consider selling or merging, make them an offer, negotiate a deal, conduct a thorough due diligence, arrange financing, finalize the legal agreements, and get the deal to closing. The entire process from start to finish frequently runs 6 to 12 months or more. By hiring an experienced M&A advisor, you get a firm that not only finds your acquisition target, but also manages the process from start to closing, saving you significant time and energy.
The acquisition process is challenging but it can be highly rewarding when you find outstanding add-on companies at fair prices. The return on investment can be well over 30% and the deal can pay for itself in three years or less by adding the target’s cash flow, technology, and people. Additionally, your company’s valuation can increase by more than what you paid for the target company, as the larger, combined entity has a higher valuation multiple than the smaller target company. In summary, using a firm like Austin Dale Group to help with your acquisitions saves time and adds significant value.