Most of us recognise that choice is key to realising a successful acquisition strategy. Yet few take the right steps to achieve this end. It is not just about having different opportunities on the table, it is also the leverage that comes with it. Choice gives you greater control over the process, with the ability to switch your attention as well as create a valuable pipeline of deals.
The acquisitive companies and firms we speak to are frustrated by what is available and express concerns in realising their acquisition ambitions. There are several reasons for a lack of alternatives, we’ll explain what they are, and what business buyers can do about it.
Having conducted extensive market research, Unloq estimates that at any moment in time there are about 80,000 privately-held businesses available for sale in the UK. So, on the face of it, there are choices out there: what is the problem?
There are a number of issues. First, let’s break down what is for sale, and take note of these observations:
So, if you are looking for a reasonably-sized company (£1m+ turnover), with a healthy EBITDA, that can grow unhindered under new ownership, the potential pool is probably under 15,000 companies for sale.
Next, let’s consider your requirements because you won’t buy any company. You probably have a preferred sub-sector, size, region and operational structure. This will also reduce your choice significantly.
For most clients, once we add in their criteria and perform our own research we find fewer than 10, and an average of 3 on-market companies for sale that fit the criteria. We think we see about 80% of the on-market companies, so it is that there aren’t many out there.
Still, you will have a handful of options, but now you hit a couple of final challenges:
So, that’s why on-market is illusory, there isn’t much choice out there when you drill down into the detail.
If there are only 80,000 companies currently for sale, then that leaves 3,920,000 active companies which are not ‘on market’ right now. However, let’s put one thing to bed: this is not the same ‘not for sale’, as many are responsive to approaches. It is worth bearing in mind that most businesses are disposed of without ever being for sale: they are sold to direct approaches. So, what does this mean for your acquisition plans?
It is worth noting that the same initial erosion occurs with off-market. Many of the number above are micro-businesses or owner-dependent or barely profitable. But it still leaves about 750,000 worth deeper consideration.
Your search criteria will remain in place, reducing your list of potential targets. However, the proportions are about right: there are, on average, fifty times more off-market businesses that fit your brief. For most projects, apart from the very local, or very niche, the target list is over 100 companies.
Now that’s choice! Your next challenge is how to research, reach, engage, qualify and persuade them.
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