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Diversity in Mergers and Acquisition Firms – Buyer beware 


Diversity in Mergers and Acquisition Firms – Buyer beware

Mention mergers and acquisitions and the first thing that often comes to mind is a BIG business deal. A high school history student might think of the wave of mergers in the late 1890’s which resulted in the Teddy Roosevelt’s “trust busting” of the early 1900’s. More recent memories include the acquisition of American beer icon Anheuser-Busch by the foreign giant Inbev, Inc. or the ill-fated merger of AOL and Time Warner. These monster deals are engineered by full-service investment banks while less massive deals may be guided by mergers and acquisition firms which often referred to as Transition companies which provide advice but no financing.

Although the big, public deals are usually aided by large mergers and acquisitions firms and investment banks, thousands of much smaller deals occur every year without the benefit of these large mergers and acquisitions firms. These smaller deals, $20 million or less, are expected to increase in the next decade as the baby-boomers move into retirement and want to cash in on their life’s work. Further, the new wave of entrepreneurs created by the growth of the internet is looking to diversify their holdings and get involved in more traditional markets. This has given rise to a new breed of mergers and acquisitions firms.

These new types of mergers and acquisition firms are small businesses focused on privately held firms and usually serve a single market segment like retailing or manufacturing. They may be just a sole practitioner with experience buying and selling small businesses or a small group that has broken away for one of the large mergers and acquisitions firms. These new-breed mergers and acquisition firms advise the small, private businessman how to prepare and present his business to the marketplace. The advisor runs through a mergers and acquisition checklist beginning with setting value, writing a comprehensive presentation to identifying and contacting potential buyers. Since these small business focused mergers and acquisition firms only handle a limited number of clients, they are able to provide personalized service and guidance.

With the advent of these new boutique merger and acquisition firms, the small, private business owner has more options when he decides to sell his business. In the past, three avenues were commonly pursued for the mergers and acquisitions of smaller businesses. First, the business owner, with the assistance of their long time lawyer and accountant tried selling the business themselves. Unless there is a buyer waiting to snatch up the firm, this approach is rarely effective. The second avenue is to use mass marketers who recruit companies through mass mailings and seminars offering a “gourmet lunch” at a local hotel. These firms allegedly made up of Wall Street insiders, often charge substantial fees upfront and have a low success rate because they fail to aggressively market the small business to the correct market. Often, much of their income is from the upfront and advisory fees, not from selling the company. They lack the specialized knowledge of the small businesses marketplace and use a “cookie-cutter”; one size fits all, way of selling a business.

The third and most traveled avenue of selling a business is business broker. Google the term “business broker” and you will have over 34 million hits in about .16 seconds. Like trees in a Pennsylvania forest, business brokers come in all sizes and shapes. Some are pure creations of the internet selling a business like a used car while others have strong links to the commercial real estate industry. Like the mass marketer, brokers do sell businesses, but are not well suited to give the business owner the best service, advice or final result.

Shedding the “one stop shop” approach, the new breed of mergers and acquisitions firm give the small business owner a much better way to navigate the mergers and acquisitions process. This small group of independent M&A advisors come from a variety of backgrounds offer owner of business with $3 to $20 million dollars of sales with specialized service and greater value. This expertise of the new breed of mergers and acquisitions firms translates into higher success rates and returns for the business owner.

Collig is one of these new boutique mergers and acquisitions firms. Collig does not recruit clients in a large retail market and charges minimum upfront fees. Collig specializes in manufacturing and technology firms and earns its fees only after the business is sold at or above a price agreed upon with the business owner. Collig becomes the business owner’s partner in the sale. The business arrangement aligns the interests of Collig and the business owner. Both Collig’s and the business owner’s ultimate success rely on one thing, selling the business with the best possible terms. This model creates one of the most talked about, yet rarest situations in business, a “win-win” situation!

 

Gary Reinhardt has over thirty years’ experience in owning and operating small businesses, practicing law and in government service. He has owned and operated two family aerospace manufacturing companies, successfully selling both; practiced law and served in high positions in state government. He is also the founder and lead principal in a boutique consultancy advising and representing owner-operators selling their privately held or family business. Learn more at www.colligma.com .

Copyright 2011 by Gary Reinhardt and Collig, Inc.