You will find what you are looking for only if you know what it is that you are looking for.
When it is time to focus on what type of company would be the best fit for you, analyze your strengths, what sectors you have experience in, what type of clients have you developed a good network with, what geographical region you want to be in, and what type of business you feel the most comfortable in: manufacturing? Service? Retail? Wholesale?
The clearer you are in your search criteria, the more help you can get from others.
For example, let us assume that two directors come to see me. One of them explains to me that he is searching for companies that have a turnover of more than €10 million without giving me an explanation. However, the other says that he is looking for an graphic design company that has a turnover of more than €10 million because that is his specialty and that he has experience in leading various important groups in that sector. If an opportunity arises in the industry over €10 million, I will call the second client because he is a much more qualified candidate with many more possibilities of closing the deal since he is familiar with the sector and knows what he wants.
What geographical area interests you?
Even though it may seem counterintuitive, the more general you are, the more difficult it is for the consultors to think of you when the opportunity arises.
I remember a few directors who had worked in the construction sector who came to see me. They told me that they were interested in buying companies tat produced curtain walls. I discussed other opportunities with them but they discarded them; they had done a study and considered that the market would grow in this field and that the true opportunity for them was there. Since they were so specific in their demand, they were engrained in my memory and when an opportunity in that sector came up, I thought of them immediately.
Determine the characteristics of the ideal company
You should also clarify the turnover amount that interests you and the number of employees that would make you feel the most comfortable.
Determine if you want a company that needs restructuration and where no more funding is needed or one that is in good condition and would generate a steady flow of cash (i.e. a cash cow). Or perhaps, you are looking for one that is held hostage by its growth or one that has a lot of debt because you are an expert in negotiating with banks.
It could be that you are looking for a company that is involved in advertising or marketing because that is your strength, or you see yourself capable of generating better cash flow.
Whatever it may be, be clear on what it is that you are searching for. Once you have determined the most important elements of the company that you want, prioritize them.
I believe that experience in the industry is fundamental. The better you know a sector, the easier it will be for you to find windows of opportunity and the more difficult it would be for others to scam you.
Focus on what you can bring to the company
When you analyze a company, do not focus so much on what it does but rather on what you can do with it yourself. Does it have a reliable client base to which you can sell other products? Can the products that the company already produces have other uses by creating new markets? Do you have the capacity to take the company internationally? After that one, could you acquire more companies in the sector and that way create a relevant player in the sector?
Potential candidates
There are two types of clear candidates:
-The divestment of a division or small company that belong to a larger company: the larger company sells it because they no longer align with the strategy or because it has financial difficulties or because it has found a better opportunity and needs liquidity to finance it.
-The sale of private companies due to the retirement of the owner or conflict between the partners.
This article was written by Enrique Quemada, Chairman of ONEtoONE Corporate Finance Group. Book: ¿Puedo comprar una empresa? Yes, You Can!
If you are interested in learning more about buying a business, take a look at THE 10 MOST COMMON OBSTACLES WHEN BUYING A COMPANY.
