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Why Single Industry Focused M&A Firms May Not Be Your Best Option

By Generational Equity

Business Choices

One of the common issues raised by business owners we meet with is this: “Why should I hire Generational Equity to represent my company rather than my cousin Larry who specializes in selling businesses in my industry?”

Our reply is always the same: Use your cousin Larry if you want him to approach the same list of buyers that he does with every client he works with. Hire us if you want us to access our proprietary buyer database of more than 34,000, companies across all industries that may be interested in your business.

This question is based on an erroneous belief that most business owners suffer from. They assume that the only buyer for their business will be another company in the same industry or, in some cases, their direct competitor across the street.

Now, in the end, your competitor may be your optimal buyer. However, if you start with that assumption, you will be eliminating the possibility that other companies in completely unrelated industries may find your business attractive.

Here is an important point regarding sourcing buyers from BCG’s 2017 M&A report:

Approximately 70% of all tech deals in 2016—9 percentage points more than in 2012—involved buyers from outside the tech sector.

OK, some of you will say, “But I am not in the tech sector. My business is brick and mortar and not sexy at all.” That may be true from your perspective, but you need to think like a buyer. Buyers look for intangible assets, items not on your balance sheet but features that when combined with their own create the proverbial 2+2 = 8 scenario.

The trend in cross-industry transactions was confirmed by Bloomberg recently:

One of 2017's big deal trends was the blurring of industry lines. Retailers are buying software and online outposts, wireless providers are looking to own content, and Inc., the king of e-commerce, scooped up a brick-and-mortar food retailer, Whole Foods Market.

For further proof, here is a partial list of cross-industry transactions in the news recently, according to Bloomberg:

Try Something New

U.S. companies are increasingly making acquisitions outside their wheelhouses. Here are some examples from 2017:

A snapshot of cross-industry M&A transactions completed in 2017Source: Bloomberg

The list above provides solid evidence of the popularity of cross-industry investing and some of them are quite compelling. For example, Whirlpool acquiring a personalized recipe company? Williams-Sonoma and 3-D imaging? Delphi and a self-driving startup?

Each of these was a strategic decision to invest in an industry that is complementary to the primary business of the acquiring firm. But you can bet that the dealmakers involved played a key role in using their cross-industry experience to find the optimal synergistic buyer for their clients.

The Bloomberg article also makes a really good point about future deal-making:

Convergence among industries continues to be a running theme for both large and small transactions. That means analysts and bankers who specialize in once-distinct areas of focus may need to bone up on other sectors.

Choose an M&A firm that gives you options

This point above brings us back to the answer to the original question: The strength of Generational Equity is that we focus our attention on doing deals across industries every day. No need for our professionals to “bone up on other sectors” – we have been doing so for years!

Having access to a diverse group of tens of thousands of buyers that have given us explicit feedback regarding what they are after across all industries is a huge benefit that we bring to our clients that boutique, industry specialized M&A firms cannot provide.

Don’t just take my word for it, take a look at the success we have had across a wide range of industries with buyers from all sorts of sectors:

And have a listen to a few of our clients who are really glad that we have relationships with thousands of buyers across all industries:

Hopefully by now you have a better understanding of the reality that the optimal buyer for your firm may be in an industry you wouldn’t even consider on your radar screen. And, that hiring a firm like Generational Equity will expose you to a much broader buyer base than using your cousin Larry (or any single industry focused M&A firm) who will simply use the same list of buyers that they do on every engagement.

Interested in learning more about how our dealmakers can benefit you and your firm? Then give us a call at 972-232-1121 or visit our website, provide us with your contact information, and we will be in touch.

If you believe that you are not ready today to exit, we also hold highly educational exit planning conferences throughout North America that are designed to help you learn as much as you can about how to eventually find an optimal buyer for your business. Even if you never hire us to represent you, attending one of our conferences can be incredibly helpful to you in the future. Here is what a few attendees of our conferences have said about the benefits of attending:

Here’s the long and the short of it: Even if you are not ready to exit today, what you learn at our conference will prepare you for the process of exiting. Whether your terminus is one year out or ten, preparation is key and knowledge that buyers outside of your industry may find your business attractive is critical to your exit planning success.

By Carl Doerksen, Director of Corporate Development at Generational Equity.

© 2018 Generational Equity, LLC. All Rights Reserved.

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Larry Moore, Owner, A Company Portable Restrooms
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Andy Graham, Vice President, Modern Heating & Plumbing
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Terry D. Wickman, President, Keytroller
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Karen S. Williams, CFO, BW Manufacturing
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Robert Evans, President and CEO of Mealtracker Dietary Software
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Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.