Acquiring a company

Finding an Acquisition Target

Cafa is approached on a weekly basis by individuals, private equity firms, search funds, wealthy investors, family offices and even sovereign wealth funds, asking if we have any companies for sale. Cafa is approached on a weekly basis by individuals, private equity firms, search funds, wealthy investors, family offices and even sovereign wealth funds, asking if we have any companies for sale. Our reply never changes: “No, we do not have anything for sale, but we will find what you are looking for”.

We do not carry an inventory of companies for sale and we caution anyone who thinks they will find a truly strategic opportunity “sitting on a broker’s shelf”.

For example, when Cafa is given a mandate to sell a company; we sell it by proactively approaching targeted strategic buyers and financial investors with investments in similar businesses. These potential buyers know the business, can see the value and are capable of closing a deal on a timely basis to the vendor’s satisfaction.

Inventories of unsold companies do exist, however you have to ask yourself why these businesses have not yet been sold. The answer is that there may be fundamental issues with the company or the vendor is simply not fully committed and is sitting around waiting for an offer of a lifetime.

A number of publicly available web-sites such as Axial, MergerMarket and Acquzition.biz among others, list businesses for sale. Although some jewels can indeed be found on these sites and deals do get done, by and far, these sites are used as a last resort by intermediaries who have exhausted all other alternatives.

From past experience, we find that buyers who conduct a proactive search and control their acquisition process will end up saving a lot of time, energy and money and find a better “fit”.

Proactive approach: How to Find the Right Company to Buy

At Cafa, we believe that an acquisition or growth strategy should have a carefully thought out list of pre-defined criteria. These should include: target sector, product type, business size, geographic location, market/customer factors, price, etc.

We also believe that most companies can be acquired at the right price. We prefer a proactive approach to acquisitions and in our mandates, we approach every company meeting your criteria irrespective of whether they are for sale or not. This approach also sends a signal to the market that you are a serious buyer. You will be the first person to be contacted by a seller when the timing is right.

Here are the steps Cafa follows towards a successful acquisition for a client:

a. Determine the client’s financial and other capabilities to transact;

b. Help the client define the target criteria (i.e. sector, product type, business size, geographic location, market/customer factors, price, etc.);

c. Identify target companies that appear to meet the criteria;

d. Approach the targets with full disclosure, dialogue with interested parties, arrange Non-Disclosure Agreements, and request preliminary information;

e. Analyse the data obtained, opine on value, acquisition and financing structure;

f. Help draft a non-binding offer (and the process goes on from there).

The benefit of a Professional Intermediary

Going at it alone is possible, but using a reputable investment banker is time and cost efficient. He will help you:

  1. Project that you are serious and have the means to transact. Vendors will take you more seriously if you are well represented;
  2. Buffer confrontations and exchanges. Having intermediaries negotiate a transaction reduces emotional responses and prevents you from being put on the spot to make a decision without adequate time to reflect; and
  3. Identify companies within your criteria such as holdings of “end-of-life” private equity funds that will have to be sold, or non-core divisions of large corporations which are more likely to transact.

Cafa has been involved in several search mandates for both local and international clients over the past few years. In our experience a targeted approach to 15 to 20 preselected companies results in a 20% to 33% success rate in getting to a first meeting and the exchange of basic financial information. This usually translates into one or two letters of intent; the closing ratio depends greatly from mandate to mandate.

In the end, our clients all acquired companies that fit almost 100% of their investment criteria.

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