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Successful Acquisitions Through Effective Deal Teams
The upcoming change of ownership among mid-size wholesale distribution companies is significant. Today, the majority of business owners have no succession plans. These are individuals who started and / or purchased businesses in the 60's and 70's and are now ready to retire. At the same time they are coming out of a deep recession and are fearful of another slide back, which would further delay their ability to sell their companies.
At the same time that this change of ownership is occurring, many companies are looking for ways to grow their businesses. The process of internal, organic growth is difficult and often slow. Consideration should be given to strategic acquisitions that bring sales volume, products, systems, organizational talent and other benefits to companies interested in expansion.
In a recently published survey by Industrial Distribution Magazine 38% of respondents reported that they are "expecting more consolidation among distributors." 26% reported that "they would be agreeable to a buyout." 30% indicated that they are "actively looking to purchase another distributor."
In our recent buy-side work with distributors we have found a significant number of owners interested in selling their companies. Why?
"The time to retire is past."
"I'm looking for a successor who can continue my work."
"Competition is more difficult and we have little leverage."
"The Family is not interested in the business."
"Not spending enough time in Florida."
"We've had years of losses and can't find a way to stop the bleeding."
"The internet is killing us."
"Don't want to invest in today's systems."
What are some of the questions distributors, interested in taking advantage of this increasing change of ownership opportunity, should be asking:
1. Where should the company be in 5-years and how will it arrive there?
2. What revenue size business would be a comfortable, digestible fit?
3. What geography is best, should it be within the current market area or adjacent?
4. Should the product line add volume to the current offering or should it be supplemental?
5. Should the strategy be to add new market segments or expand within existing segments served?
6. Do you need additional managerial or line talent? Or, would most of the acquired organization not be needed?
7. What is affordable, both in terms of cash and leverage?
How does one go about finding viable candidates? An effective M&A buy-side program using capable and knowledgeable professionals will bring forward qualified candidates. Some of these companies may be on the market, however most are not. Critical to success is an understanding of the industry and markets served; knowledge about potential candidates; and effective screening to sort out companies that offer the best fit. A good process is one that looks at the quality of candidates rather than quantity.
As the process evolves, a variety of professional needs exist including: strategic planning, accounting, banking, insurance, legal, and IT. All of these disciplines are involved in the search, selection, bidding, negotiating and due diligence process. The key to an effective transaction is a "deal team" that works together. Deal teams include a knowledgeable intermediary / M&A professional, accountant, transaction attorney, banker, insurance representative, IT and other consultants.
Critical, as well, is the post transaction integration work that makes the acquisition a success. Unfortunately, the majority of deals are problematic or they fail altogether. This is caused by the lack of diligence post closing. A key part of the process is assuring that the steps are in place to create success and the right "deal team" and "post deal team" can make this happen.
The Distributor Board is unique in its approach to M&A buy-side transactions. Our first focus is on the Distributor and understanding their goals. We have owned and managed distribution businesses and understand the impact of an acquisition across all disciplines of the company. Our work does not stop at the closing, but continues through the transition process. An important part of this is our close work with the "deal team," the professional advisors, all of whom together can create the best opportunities for our clients.
If you are a distributor or you have distributor clients that are considering growth through acquisition, give The Distributor Board a call and let's discuss how together we can create an effective deal team!