EUROCONSIL considers discretion to be a critical success factor in business succession. Only discretion ensures that business operations continue smoothly and, thereby, that the company’s value remains stable. The risks arising from a breach stem from the interests of those involved, which third parties (e.g., competitors) sometimes exploit in a calculated manner. Specifically:
1. Listing in databases:
The traditional method of marketing for small and medium-sized enterprises remains listing on national business exchange platforms such as the DUB. Through these platforms, the anonymized company is very quickly made accessible to a large audience. A drawback in this case is the “scattergun” approach, which reaches people who are not part of the target group of prospective buyers.
2. Informing the network:
A good M&A advisor has a broad network, which they regularly update on new intentions to sell or buy. This network typically consists of advisors and investors of various backgrounds from the SME sector, who in turn are familiar with the needs of their clients and network partners. They act, so to speak, as multipliers in the search for a “match.” Maintaining discretion is crucial here—a matter of course for reputable advisors.
3. Direct outreach in the market:
On the one hand, companies that are already active in the respective market—for example, as competitors, customers, or suppliers—are suitable targets for direct outreach. They either want to grow in order to realize synergies in market development or on the cost side, or they hope to benefit from risk diversification.
Particularly in the supplier industry, a shift in thinking regarding the structure of supply chains is currently evident. On the other hand, it also makes sense to approach private equity firms or family offices for whom the market of the company up for sale is one of their selected target markets.
The options outlined are not mutually exclusive but can be combined in various ways depending on the sales strategy.
Procedure for Direct Outreach
If direct outreach is part of the sales strategy jointly determined by the seller and the advisor, the first step is to define the target group. Who should the search reach? If, for example, the target is market participants, they must be approached in a completely different way than interested parties outside the market.
The definition must be broad enough to reach a sufficient number of interested parties. At the same time, however, the sale should generally proceed as discreetly as possible, which necessitates a focus on the key potential buyers.
The second step involves identifying the specific recipients within the defined target group. In addition to the market knowledge of the seller and the M&A advisor, industry associations and address databases are particularly useful for this purpose. A good M&A advisor should already be familiar with relevant portfolio companies.
Once the target companies have been identified, the relevant points of contact must then be identified. This varies greatly from company to company and ranges from the owners to the corporate development management. The search for the contact information of these individuals is also time-consuming and, due to data protection regulations, is not always successful.
In a final step, the identified contacts are approached confidentially. The traditional—and entirely intentional—shielding of decision-makers by support staff or secretariats must be taken into account and overcome.
What are the advantages and disadvantages of direct outreach?
Direct outreach, as one option among several for identifying suitable prospective buyers in the context of a business sale, has the advantage of allowing discussions to focus on prospective buyers who have been pre-selected.
Conversely, the smaller circle of interested parties increases confidentiality in the sales process. At the same time, however, potential interested parties are excluded from the process from the outset, which can result in disadvantages during sales negotiations or the bidding process. Of course, direct outreach is the option that requires the most effort.
Conclusion: For whom is direct outreach suitable?
The smaller the market niche of a company up for sale, the more sensible a direct approach becomes. In this case, the confidentiality recommended by EUROCONSIL is particularly important, and this is best achieved by engaging a trusted advisor.
However, this approach is only viable if the expected transaction volume justifies the significant effort involved, assuming direct outreach is the only viable option. In all other cases, direct outreach is just one option among many and should therefore be combined with other approaches.
