Looking for Buyers in All the Wrong Places
Grata Co-Founder and COO Nevin Raj shares what founders should consider when planning an exit
As deals slowed down this year, the words “deal sourcing” graced the headlines pretty frequently. But I think there’s an aspect of dealmaking that needs a little more love: exits.
You know, the way you create returns for LPs.
What’s tricky about exits is building a strong list of potential buyers. Why is this tricky? It’s deceptively difficult. Most dealmakers would shrug and say, “Easy. I know where to go for my lists.” But there are a few strategies you can use to build an even stronger buyer list that goes beyond your usual suspects.
This section of the report is sponsored by Grata and originally appeared in the Fall 2023 edition of Middle Market DealMaker.
Broaden Your Search
If you feel confident in your buyer list, I’d challenge you to go back and review it. How much out-of-the-box thinking do you see in that list?
Take, for example, a dealmaker that’s selling a business process outsourcing (BPO) company that provides HR services.
Selling a BPO, it wouldn’t be surprising if this dealmaker’s initial list included firms whose portfolio companies include similar service companies. But the strongest buyer lists go one step further. They include new kinds of buyers, like recruiting or consulting firms looking to expand their services.
However, like dating in the 21st century, it’s getting harder to make the right connections.
Without the right technology, you can’t easily sift through every firm’s investment criteria and determine how that broad, generic wording plays out in their investment history.
You’re left in the dark searching for the best match for your investment.
Buyer Intent—Who’s Looking for You
You’ve likely got a list of expectations. And yes, we are sticking with the dating analogy!
Instead of height or hobbies, we’re looking at buyer intent. If you can rank your buyer list by buyer intent and expend the appropriate amount of resources for each—some companies don’t deserve that second date—you’re much more likely to find the best buyer in the least amount of time.
As you build your list, consider:
- ACQUISITIVENESS. You can assess this by looking at the number of total investments the firm has made and the relevant investments it has made in your space. Is it executing a roll-up with many add-on acquisitions? Is the firm investing around a theme?
- RECENCY. When was the firm’s last investment and exit? This will help you understand if it is in the market or if the deal you’re seeing is stale.
- INVESTMENT MANDATE (ABILITY TO BUY). The be-all and end-all for financial buyers will be their mandate. Can they (and will they) invest in
the revenue or EBITDA of the target? For strategic buyers, do they have enough market cap, cash or revenue to do the deal? If they can’t afford the deal, there’s no deal to be done. Conversely, if the deal is too small, it’s not going to be worth their time. - FINANCIAL SPONSORS VS. STRATEGIC BUYERS. A financial buyer will likely run a faster due diligence process, but a strategic buyer will likely have more alignment and can pay higher multiples. Each has different goals and needs to be approached differently.
The Right Places
This kind of list building is crucial not just when it comes to exits but also when raising a fund or attending an event. It’s a skill the leading dealmakers already have, aided by the right technology.
Pulling in up-to-date acquisitions to understand a market, searching across them and ranking firms by their intent should take seconds, not hours. If you’re missing this data, you just might be looking for buyers in all the wrong places.
With Grata, you can search across 20,000 financial sponsors and 100,000 strategic buyers based on their investment criteria and past deals to build the most comprehensive, most accurate buyer lists.
Nevin Raj is the chief operating officer and co-founder of Grata, a private company intelligence engine for middle-market dealmakers.
Middle Market Growth is produced by the Association for Corporate Growth. To learn more about the organization and how to become a member, visit www.acg.org.
