By Scott Bushkie

Reviewing the companies we’ve sold recently, I see the majority have sold to strategic buyers (companies growing through acquisition). And not only did they sell to strategic buyers, they sold to companies much larger than themselves.

In one instance, the buyer was a multibillion dollar organization. In another, a company doing $6 million in revenue went to a $90 million corporation.

This trend toward large strategic buyers has positive and negatives ramifications for the seller. On the positive, strategic buyers typically pay more than a financial or individual buyer will. The business opportunity simply has more value to them, due to economies of scale and other synergies.

Not only do these buyers pay more, the deal structures usually are better. We’ve seen strategic buyers pay much more cash at closing; in some cases, almost all cash.

Companies of this size have sizable reserves right now. They’re earning next to nothing in interest on that cash, so they’re giving their corporate development team the go ahead to put those dollars to work.

As for the seller’s business, a strategic buyer can help propel the organization to a whole new level. Thanks to its new parent, the company will now have access to resources, capital, distribution channels and other experience it didn’t have before.

That said, from a legacy factor, the company name may be rolled into the acquirer’s brand. So if you want to drive by and see your name on the sign—that’s less likely to happen than if an individual or financial buyer bought it.

Your employees, too, will face positives and negatives in the sale. The potential for employee casualties is, of course, higher. Administrative and financial staff are often particularly at risk.
In the businesses we sold recently, most of staff were retained. Employees that make the transition generally benefit from growth opportunities, new challenges, and perhaps even improved benefits.
As for the sale process itself, that too is a mixed bag. These larger companies do a lot of acquisitions and have professionals dedicated to the process. As such, they’re very methodical, and they don’t miss much. The due diligence process is typically intense and can take longer. They cover their bases—probably to the point of overkill.
That said, although it’s intense, their due diligence questions will be specific to your industry. Almost everything they ask for will make sense, and that makes the whole process a little less frustrating.

We expect the strategic buyer trend to continue as we see more corporate buyers get comfortable with the economic climate. The first group got into the market in mid-2010, another came in early January, and we expect a third group will get in at mid-year. That’s good mergers and acquisitions news, as these buyers should continue to drive business values.

Scott Bushkie is President of Cornerstone Business Services, a low-to-middle-market M&A firm. Reach him at 888-608-9138 or [email protected]

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A thought-leader in the industry, Scott developed the Cornerstone Process to offer investment banking M&A-level services to the lower middle market. The result is a closing ratio that’s more than double the national average.