When we first meet a business owner who wants to sell or raise equity, they often ask us to thumb sketch the potential buyer universe.
Rather than commencing a review of individual buyers, we usually start by categorising buyers in two ways:
1. How do they intend to structure the ownership of any business they acquire and
2. how long they intend to keep the business
Some buyers want to merge and integrate anything they buy into their own business – we call these the company integrators. Often, but not always, they have good company integration experience often written in what they call their “integration handbook”. In almost everything they do they are hands-on, they will set the direction of the business and also might dictate, for example the travel policy. They pursue the identification and realisation of business synergies and will seldom allow the double-up of resources to occur. Their motto is “where there are two there shall be one”.
The ownership of buyers who integrate comes in many shades. Some are privately owned by an individual, a group of individuals or a founding-family structure. Others are owned by professional business owners, such as venture capital and private equity funds, sovereign funds or family office funds. In most cases these firms have strong, experienced and cohesive management teams, who operate with the precision and timing akin to Napoleon’s Grand Armée.
Integrators seldom sell the businesses they buy – scrambled eggs are hard to unscramble.
To federate – to unite or cause to unite in a federal union.
Federating acquirers have a small head office controlling unit and allow each acquired unit to operate independently with varying degrees of management autonomy.
When acquiring businesses, Federators place high importance on the quality and motivation of its management team. When they acquire companies, they keep them operating as is, and do not seek synergies.
The ownership of buyers who federate is almost always professional business owners, such as venture capital and private equity funds, sovereign funds or family office funds. In recent decades a new group of ‘collector’ company has arisen, like Constellation Software from Toronto, who collect software company addressing business vertical, similarly Valsoft from Montreal and Software Combined here in Australia.
It is vital to know how these two types of owners operate after they might acquire your company, so you can play to your strengths when engaging with them.
At Presser & Co, we consider these ownership profiles very closely when presenting your business.