If you rely on web or print advertisements for marketing business sale or acquisition opportunities in the $1M-50M market – you are doing it wrong!
While posting ads and waiting for active buyers/sellers to find and respond to an opportunity may yield mild success in a booming market, it becomes significantly less effective in a slower market when buyer activity is reduced. Today, an active marketing approach is required.
Web marketing, the most prevalent passive marketing option, is best suited to the broader ‘buy-a-job market for small businesses (<$1M). In this market, buyers are characterised by their large numbers, absence of strategic focus, low volume of acquisitions (often one per buyer) and relatively short shelf life of time in the market. All of these factors make it pointless to try and maintain a current database of buyers. Web marketing serves as a valuable tool for presenting an opportunity to such a broad and transient market.
The effectiveness of passive web marketing decreases quickly as the value of businesses rises above $1M, where the profile of buyers shifts considerably.
The chart below shows the relevance of each different buyer profile over the range of business values:
The absolute number of prospective buyers for any given business reduces substantially as the value of the business increases. Once business values outgrow the owner-operator/“buy-a-job” market, astute M&A advisors understand the advantages of contacting strategic buyers direct on each sale opportunity. Strategic buyers are those with the most to gain and the least to risk from an acquisition. They are in the best position to leverage a business’s resources, IP and assets, and therefore place the highest value on the business. The methods used to undertake this targeted marketing differ greatly with the size/nature of the businesses being marketed:
- Above $50M, the market of buyers is so small that most can be individually identified and contacted one at a time. The process for contacting target buyers in this market generally involves a highly tailored approach, with a unique presentation to each buyer.In many cases, separate Information Memoranda, marketing briefs etc. are prepared and presented to each individual buyer, specifically tailored to their own individual circumstances to highlight key areas of value and synergy for their organisation.
- In the $1M-50M market– the profile of strategic buyers is significantly broadened, with numbers ranging in the thousands for each individual opportunity. This generally includes larger corporate players in the same or related industries, PE firms and other buyers with sufficient synergies and financial backing.Due to their sheer number, it is not feasible to contact them all individually.
Presenting relevant opportunities to as many target buyers as possible is the goal. So the question arises:
How do you identify and target strategic buyers efficiently when they number in the thousands?
The answer: Targeted Direct Marketing.
Targeted Direct Marketing is consistently highly effective in the mid-size range of SME’s between $1M and 50M in value. In this market, strategic buyers may or may not be actively looking but will certainly be interested when a good strategic fit is presented to them.
With the right database and an effective marketing system, between 1,000 and 3,000 targets unique to each individual opportunity can normally be identified, targeted and contacted in a very short space of time.
Identifying target buyers
Identifying large numbers of strategic targets for any given opportunity can be facilitated by first developing a profile of the most likely buyer groups and nominating appropriate SIC (standard industry classification) codes related to each. The optimal process for selecting appropriate SIC codes typically involves a stepped approach, asking the following high-level questions:
- Which groups of buyers have the most to gain from this business, with the least risk? Identify key competitors, suppliers, distributors, PE firms etc.
- Which industries/groups do these buyers belong to?
- Which SIC codes cover all the relevant industries/groups identified?
Once the SIC profile of target buyers has been identified, the next step is to generate a list of target contacts from a suitable database.
To be effective, it requires more than a generic database such as those available from list brokers. Not only must the database contain up to date relevant contacts, but it must contain and track all relevant attributes including accumulated history and investment preferences, SIC code mapping, and in-depth profiling data for each contact. To meet these criteria, it must be used regularly for M&A activity and be kept up to date.
With the right (reliable) database resource, a list of target contacts unique to each opportunity can be identified by searching for the selected target buyer criteria. In our experience, this generally ranges between 1,000-3,000 contacts per project.
So you have the list of contacts… what now?
Mail and email are the two most effective options for contacting thousands of targets quickly, efficiently and accurately. Provided the database resource used to identify the targets is current and properly indexed, marketing materials will be delivered directly to the key decision makers in each target organisation. Where a target buyer is already a registered email subscriber to the database, an email is sent. Where they are not, post is the most effective method.
A complete direct marketing solution will also provide a full direct mailout and email system with tracking and reporting. Responses from interested buyers need to be sent promptly through to the project advisor for action.
For those using a combination of direct and web marketing of businesses in the $1M-$50M segment, direct marketing consistently accounts for more than 80% of the businesses sold.
Direct marketing is even more valuable in today’s market, where many buyers are sitting back and are not actively searching. They can be brought forward to the market by being presented with businesses that offer an attractive strategic fit and leverage.
Typical case studies demonstrating the effectiveness of direct marketing to targets in the Australia/New Zealand market are as follows:
Case study 1 – Laser Cutter
|Target industries:||Fabricated metal products, private equity|
|Number of SIC codes selected:||16|
|Number of target contacts selected:||2300|
|Sale Project Status|
Case study 2 – Security Monitoring
|Target industries:||Security systems services, private equity|
|Number of SIC codes selected:||9|
|Number of target contacts selected:||2000|
|Sale Project Status||Under Contract|
Case study 3 – RTO
|Target industries:||Educational Services, mining, private equity|
|Number of SIC codes selected:||10|
|Number of target contacts selected:||1200|
|Sale Project Status||Sold|
Case study 4 – Plant Equipment Hire
|Target industries:||Heavy Construction, Mining machinery, Equipt hire and rental, private equity|
|Number of SIC codes selected:||19|
|Number of target contacts selected:||2900|
|Sale Project Status||Withdrawn from market|
Case study 5 – Electrical Contractor
|Target industries:||Electrical contractors|
|Number of SIC codes selected:||4|
|Number of target contacts selected:||1400|
|Sale Project Status||Sold|
An article on Divest Merge Acquire’s website explains in more detail how Divest Merge Acquire uses targeted marketing: Business Opportunity marketing: Why so few M&A advisors get it right.
Divest Merge Acquire’s Database
Recognising the effectiveness of direct marketing early on, Divest Merge Acquire has invested more than $3.5 million and over 20 years developing an M&A-specific database. This resource is proven, having attracted over 85% of buyers for all transactions completed by Divest Merge Acquire.
A team of people continuously updates the database, which is rich with investment parameters and history of all contacts and their activity. This makes selection and qualifying targets a highly efficient and effective process.
Divest Merge Acquire’s marketing resource is utilised in marketing all Divest Merge Acquire clients, and has proven highly effective in both Divestment and Acquisition search engagements.
For other M&A Advisors or Professionals involved in buying/selling businesses
This marketing system is also available to other M&A advisory firms and professionals selling businesses (eg accountants, business brokers etc) via MNA Direct.
MNA Direct, (www.mnadirect.com) offers a direct marketing solution for those selling Australian and NZ businesses. MNA Direct can provide a boost to any M&A marketing process in the $1-50M enterprise value range, where buyers in large numbers can be targeted on an industry by industry basis.