Buy-side Process: Navigating Business Transactions

In this episode, we revisit our process but this time from the buy-side. We cover the key steps involved in buying a company, from identifying potential targets to negotiating the deal. Whether you're looking to expand your services, enter a new market, or grow through acquisitions, our conversation will help you understand what to expect and how to prepare.

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TRANSCRIPT

Welcome to Integrated Insights with ICCG. For more than 30 years, our team has partnered with small business owners to prepare for and navigate the business transaction process.

Pull up a chair as we share stories and insights from our experience on all sides of the M &A table. Welcome back for another episode of Integrated Insights.

My name is Michael Hefner. I'll be your host today. I'm joined by a couple of the ICCG team members, Andrew McQuilkin and Mace McFarlane. Hey guys, thanks for joining me. Thank you. Thank you.

So today, we're going to be talking about buy side process. We've talked a lot on previous episodes about sell side, and that is most of what we started doing when we got into M &A.

but lately we've really picked up on the buy -side transaction. So to get started, Andrew, can you talk about what we mean when we say buy -side process and what that process looks like?

Yeah, so I think that we should first clarify the two types of by -side scenarios that we would take on, right? And so first off,

the first type of by side that we'll take on is a an identified target so if you say hey i want to buy joe blow landscaping right uh we're gonna and i need you to represent me to do that right and so that's when we will represent you to go after joe blow landscaping and approach them communicate negotiate all of that normally that yields a yields a a situation where it's a competitor,

right? So if you are ABC landscaping, we'll say, right? I think they're, if they're trying to go after Joe Blow landscaping, then then it's kind of a difficult situation where it's a relationship that needs to be managed or it's there's some confidential information that needs to be managed,

and they're just competitors. And so we're there to step in for that. It also yields other types of relationships. We did one earlier this year,

we closed one where it was a group of contractors, concrete contractors that were acquiring the company that licensed product to them and so they wanted to kind of they wanted to own that that that that that that product that that they were that that that that they were using and so um and so we represented then but of course that's a that's a relationship and that needs to be handled really well right and so because

if it doesn't make sense and they're not going to buy they still have to walk away with a good relationship right and so it's that's that's kind of the the mostly the scenarios that will take on um it the other type of by side scenario that will take on is your roll up strategy so we've talked about free sanding ers landscape companies we've done pest control uh rollups in the past and those are are very cookie

cutter hey we're going to buy this type and you're evaluating company based on very just the same model every single time I know every company's different and so we're we're there to look at what the differences are but at the end of the day we're we're there to to roll up the same type and you're there to operate them and so that's that's what we'll do what we won't take on is somebody that's looking to buy a

business, right? I mean, I have, I probably have one, two calls and meetings a week that is with somebody that wants to buy a business.

And there's maybe not, there might or there may or may not be some specific criteria to it. But at the end of the day, if it's not going to change my day -to -day, I don't really want to engage.

Because most of the time, there's going to be some sort of retainer that is associated with a buy side deal. And what I don't want to do is have somebody pay me every month and it not change my day to day.

Because I'm already looking for most likely that specific type of company that they're wanting. And so what I'm going to do is try to find it and then either it turns into an identified target where they can,

they go after it, or it turns into a sell side deal. And so, so anyway, that's kind of our main two by side processes that will take on.

I know that every scenario is probably different, but a buy -side process is it starts of the meeting to understand exactly what you're going for.

And the way that you're going to look at, the way that you're going to look at companies to buy, right? What's your strategy? There's always a strategy, and we have to understand what that strategy is,

you know, is it, is it you're wanting to add a different type of service to what you're doing? Is it a, is it a new geographic area? Is it,

you know, all those types of things. So, so it really starts with, we have to understand exactly what your goal is, right? Just like sell side, but by side,

we we have to look at what specifically you care about in a business. So for sell side, that usually looks like so to prepare to take it to market.

How does that compare to what we're doing here on a buy side deal? Yeah, I mean, I think that the difference is like what you said, we're not taking it to market. We're not developing marketing materials to go sell a business.

And I think that another difference is, I think on the cell side, we handhold a lot. And on this side, it's not as much because most of the time they know what they're doing.

And so, like, for instance, due diligence, we're very involved on the cell side. We're interpreting different things that are on the list. And on the buy side,

we, I mean, we can coordinate, we can kind of quarterback it and communicate between the buyer and seller. But at the end of the day, we're not performing the due diligence. You know,

it's interesting. I've seen other intermediaries. They even make some sort of profile of their buy side client,

and they try to market them to a bunch of these sellers, right? And I mean, we've thought about doing that. I guess that's it's not a bad thing to do. If you think about it,

these clients of ours, they know how to operate, right? And we're not going to tell them how to operate a company. But what we are going to do,

what we specialize in, is how to look and identify, look for and identify the opportunities that are out there,

right? And so we're there to advise them. Here are the opportunities. Let's go after the ones that make most sense to you. Right.

And so I think that's where we will get involved heavily is to, is just to walk through the opportunity of buying,

not operating, but buying. Well, I would add, of buying. Well, I would add, too, and this is coming on a future podcast, but another value that we bring to the conversation is what that transition looks like and that we can own that for the buyer,

right? Because on the sell side, like, hey, we'll assist however we can, but we're not taking care of the problems for the buyer if we're just on the sell side. And we'll get them what they need,

talk to the or that kind of thing, but on that by side, we're really helping them to get to the point that they're running smoothly and helping them to solve those problems and come alongside them until they're kind of in smooth sailing territory.

So that's good. So, Andrew, you talked early on about the clients, how clients look different, what kind of clients we take on with buy side. What does engagement look like?

How does that differ than sell side? Sell side, we're going to engage them to take them to market, but we already talked about the difference that we don't do that here. When do we engage a client to start actively working toward buying a company?

Yeah, great question. That is, I would say it's probably similar to the sell side in the most basic terms, right? So the ultimate goal of an engagement letter is to line out what is expected on both sides,

right? And so what services we're going to provide the amount that we're going to do it for and how that's structured.

And it also gives expectation of what we expect from our client. And so if that's essentially what the engagement letter is,

we have to define all of those and so once we're ready and we all are are not only understand but we're in agreement with with what's expected then then we'll engage and then we'll go we'll start searching right or we'll start we'll start contacting that that one the the identified target right and and and and we'll go from there.

And so that's really where we will engage or where we will sign the engagement letter,

if you will. Yeah. Yeah. When you say we will start searching, you're really talking about, hey, we'll keep our eyes open for a good fit, but we're not going to go actively contact companies to see if they are a fit for somebody until until we know who that fit is essentially.

If we have a by side mandate that is, I'm looking for a pest control company that has a million dollars of revenue and specifically recurring or whatever it looks like,

you give a specific, what's very important to you, what's key. and we will take that and we'll start once we sign the engagement letter we will then go look at so many different pest control companies will we'll start vetting them and figuring out what is what who is who's going to fit that right and who's going to fit it and who's interested in selling and so and so that's where the those those are the two most

basic things that we'll have to start with with any business owner that when we're representing the buy side,

those are the first two things that we've got to ask for the seller, right? And the first two questions that we've got to answer. And if it fits that, then we can actually take that information over to the buyer and say,

here's what we have. let's start digging in together and we'll start digging in to find more and more information from the owner getting financials getting certain reports that we can then present to the buyer to our client and sift through here's here's what the opportunity is here's what based on what you have given us uh the strategy that you have have have laid out for us and And we will take that and see,

okay, what's the opportunity in this business? And so that's what we'll do is once we sign, we'll know exactly what they're looking for.

And so then we start putting the foot on the pedal and let's go find something, right? Talk about that a little bit more. So I know right before we jumped on this,

you just got off the phone with a business owner, right? And they are not an engaged client yet. You know, and they're talking about, hey, we got this company. We might be interested in selling.

And they tried to ask you, hey, do you think it's a good fit? And talk a little bit about what your response was there and what some of those reasons were. Yeah, you know, it's a, it's a company that is in a up -and -coming area that is,

I can't say it's, it's a small market, but it is on the smaller side, right? It's not Dallas -Fort Worth like we're in, right? It's not L .A. It's not New York.

It's not those big Metroplex areas. But he, he's thinking, hey, I know I might have a couple more years to really cap my,

the growth that I'm, the growth trajectory that I'm on right now. But I've got this company that's for sale. It's an hour away.

He didn't tell me where and what direction it was. He didn't tell me what specific type of service that they provide. Is it similar to theirs?

Is it, you know, he didn't tell me anything, right? He just wanted to know, okay, is that, is that something that's, that I should pursue? I mean, look, hey, I'm, if,

if, uh, if, uh, if you want to go after it, that's great. But at the end of the day, can I tell you that it is part of your strategy to go after that opportunity?

I can't. I don't know, um, I don't know if, if it is or not. One, I don't know your goals. Um, I mean, I mean, I know his goal when he wants to sell ultimately,

but I don't know what his goal is if he was going to buy this. And I don't know, I also don't, I don't know what the, what, what, what, how he was going to operate,

right? I mean, you, he has to answer the question, how does it make sense to operate these two, right? My company and then, and then this other company that I would add on,

right? If it's an hour away, it doesn't make sense. And if you do it that way, is it going to be this type of service and this type of service over here?

You know, how do you separate the two? Is it this type of material? This type of material. Is it, you know, or is it just two different geographic locations that you're wanting to serve.

And that's okay. And if that's what his strategy is, let's go for it. But it has to make sense for him to operate it. And so that's what we have to answer,

or what he has to answer for us, for us to really make sense of what opportunity there is in this company that he's wanting to look at.

And so I think that's where we would hang out on with that specific conversation. And so he ultimately said,

you know what, this is, it probably doesn't make sense to operate something like that an hour away. I mean, look, it could in some scenarios,

for him it didn't. And so that's, but that's what we do. We're there to help have that conversation to ask the right questions to figure out if it's the right opportunity or not.

Yeah, that's great. Well, before we wrap up, because I think it's such an important part of the conversation and how these byside deals differ from the sell side.

And let's talk a little bit about negotiation and end on that. How does negotiating on buy side deals look different than the sell side deals. Salside, we're dealing a lot with P .E.

groups, that kind of thing. People that have done multiple deals in the past. So how does that affect negotiations? I think that the difference is, you know,

when we represent the seller, we're having to communicate with a buyer that really knows what they're talking about.

And so we're trying to interpret when we represent the seller. And so on the buy side, we're kind of doing the same thing. We're helping them understand how we got to the offer that we're getting.

I think that's, it is an interesting question to, because negotiation is negotiation, right? But at the end of the day, who are you negotiating negotiating with and who's on the other side of the table.

And I know we've we've actually talked with Dave about about his negotiating strategies because it's it's unique. To me, it's unique. And we like to be on the same side of the table because it sets up for success moving forward past,

you know, you want to save that relationship still while also serving your client. But I think that the negotiation, it does change a little bit because of who you're talking to,

right? If we're on the sell side, most of the time, not all the time, we're talking with a financial buyer, right? And a financial buyer may or may not,

most of the time not, speak the same language as our client and so we do serve as that interpreter and but but when we're on the by side most of the time our client is somebody that that knows the business right they they know they know the industry and so they speak the same language and and and the questions that that we can ask to to kind of figure out where we should negotiate.

They're more relative to the industry. And so really it's a little easier to negotiate just because both sides understand the same language.

When we're on the sell side and selling to a financial buyer, it can be a little bit more difficult just because we're having to negotiate and interpret at the same time, right? And so on the by side,

we try to get as much information as we can in order to make some sort of letter of intent and then negotiate some details.

And we try to, what we try to do is try to verbally come to an agreement before we even submit one. It's not always the case.

Sometimes we need to just go ahead and put something on the table and then work from there. But really, we try our best to speak the same language as the seller just so that we can negotiate well.

Yeah. Yeah. Yeah, I think the other piece that I've seen that I would just add is since you're dealing with two people, the two sides of the table,

then neither side has a ton of experience with business transactions. And not only are you having to interpret, but you're also having to play referee a little bit and just say like, hey, that's not normal. Like at this time in the deal,

that's not the time to do that. Or hey, what you're asking. I understand the reason for asking it, but that never happens. It's not a consideration in business transactions and stuff like that. So there's a little bit more of like,

hey, yeah, you know, without killing the deal and without saying like, hey, that's not, you know, invalidating and not not understanding the importance of it to them or something like that and just saying,

no, no, no, like you're dumb. We're not going to shut them down in that way, but it's being understanding, but also saying, but that's not going to happen, and here's why and making sure that we're explaining our side and protecting our clients.

So, but awesome. Guys, anything to add before we wrap up? No. Good. Thank you. Thank you, Michael. We appreciate you. Yeah. Thanks for being here,

guys. That's all the time we got for today. And that wraps up another episode of Integrated Insights with ICCG. Be sure to subscribe and stay tuned for more stories from our team.

We love hearing from our listeners. If you have any questions or topics you'd like us to cover, please send us an email in the show notes. For more information about ICCG,

please check us out on our website or follow us on LinkedIn and YouTube. Until next time, there's always a seat at our table.