Gone are the days of strategic companies being the only acquirers of companies. There are so many types of people that may approach a business owner, distinguishing can be very challenging.

  • Here are a few of the main types:
    • Family Office – a family such as the founders of Walmart will have a portion of their wealth dedicated to acquiring companies
      • How to Tell – ask them where the funding for acquisitions is coming from or on their website they will typically say family office or “single source of funding”
      • Pros – typically flexible when it comes to the amount of time they can hold their investment. Typically they can act fast given they don’t need board approval for investments. They have lots of flexibility in terms of structuring the transaction
      • Cons – not usually looking to grow the business significantly and then sell it so if you are looking to retain equity after the sale and have more of a growth partner, then keep looking. Usually it is a smaller team than other acquirers so may be less hands on. They are usually looking to buy and hold a company like a bond. Typically, they are not going to submit the highest offer because they do not have a high growth idea for the business.
      • Example: https://sopriscapitalpe.com/
    • Private Equity – the purpose of a private equity firm is to acquire businesses, grow those businesses and then sell them in 5-10 years. Private equity has shifted over the years – it used to be the PE team would come in, be the smartest people in the room, replace management teams, etc. Now, they come in and want to partner with you. They basically ask you what you need to grow.
      • How to Tell – a private equity will say so on their website but the main thing you want to look for is whether they have committed funding. This means they have the money essentially already raised. As opposed to a sponsor that will sign a Letter of Intent with you and then go out to their network to raise the required funds to purchase the business. They will basically require you to retain some equity as part of the transaction so if you are looking to sell 100% of the business and walk away, this is not the buyer for you.
      • Pros – they look to partner with you. They will most likely be the most helpful and hands on to help you grow. They are masters at acquiring other businesses into your company so if you have others you would like to acquire, they would pay more for your company and help with all integrations, etc. They can also structure the transaction so that you retain equity and have a board seat after the sale. You can be less involved but not totally retired. Often will pay the highest price.
      • Cons – if you are looking to walk away and sell 100%, they are most likely not the buyer for you. Usually use a lot of debt to buy businesses so you need to believe your cash flow is predictable enough that it can withstand debt covenants and such.
    • Private Equity (sponsor) – this is very similar to the Private Equity but they need to raise funds in order to buy your business and do not have the funds already available. Obviously, this creates the potential for them not to raise the amount you agreed to when you signed the LOI. We find these transactions take longer but they do get done. It would be wise to talk to their funding sources and not just them to make sure everyone is on the same page before signing a Letter of Intent.
    • Search Fund – this is an individual who may have run a company before or just graduated from a top notch MBA program (or we have seen ex-military professionals at the helm of search funds), and they want to purchase your company and transition you out to run it themselves. They are typically backed by a family office or a private equity fund to buy the business.
      • How to Tell – the website of a search fund will be very simple. It will typically show one person’s bio and explain the types of companies he or she is looking to buy. The main indicator is if it says “I am looking to buy one company” then it is a search fund.
      • Pros – this person is usually young and hungry to come into your business and make a change. If you feel your business needs a reinvigoration of energy, this person will bring it. If you are looking to take a large step back from the business, this person will allow you to do so by taking over and managing the day to day.
      • Cons – they do not typically offer the highest price. They spend potentially years trying to find one business to buy so if it is early on in the fund, they will likely be very picky and need to know a lot more information than other buyers. It would be wise to talk to their funding sources and not just them to make sure everyone is on the same page before signing a Letter of Intent.
    • Strategic Corporation – this is the classic acquisition. Before private equity and family offices and all the other types of acquirers were created, most businesses would be sold to large companies in the same space as the seller. Think of Disney buying a streaming service company. Most business owners will be approached by this type of acquirer at some point in their career.
      • Pros – if the strategic that is looking at your company sees it as a perfect fit, they may pay more than any other buyer. If you are looking to take a step back from the business and transition out, then this might be the best option for you.
      • Cons – If you are looking to stay on and maintain what you have built as a culture, company, brand, etc., then this is not the option for you. Many times there will be cost cutting as your company is consumed by the larger corporation. You will become a small fish in a large pond.