Dear Buyer – A Sincere Letter From Your Buy-Side Consultant

Dear Buyer,

If you’re anything like me, you love a good deal: “BOGO”, “50% off”, “final sale”, “clearance”, “all must go.” What comes to mind when you see these discount signs? I usually think one of two things:

• This is a great deal, and I should buy it; or
• What is wrong with the product?

Making the correct choice requires diligence and a little bit of luck. The choice is no different when companies look to acquire other businesses. If you are a business owner looking to make an acquisition, you should ask yourself several questions before indulging in any impulse buys.

Is it quality?

What makes a quality business? There are many answers to this question, but I’ll focus on what I view as most important.

• Financial health – the business has consistent growth in sales and profitability, manages its finances and balance sheet prudently, and has a financial structure that allows for sustainable growth.
• Elite value proposition – the business offers products or services that are superior to competitors, meet a genuine market need, are problem-solving or innovative in nature, and are not easily replaced.
• Strong company culture – the company fosters a positive work environment, values employees, encourages collaboration and growth, and has a higher purpose that employees value and share.
• Adaptive – the company can easily adapt and capitalize on opportunities in rapid-change environments.
• Diversified – the business offers a diversified portfolio of products and services to a diversified set of customers and industries.

These are just a few characteristics of quality businesses. If the business is not quality, there is no need to buy it.

Does it fit?

If you buy an outfit or a pair of shoes, no matter how great they may be, if they don’t fit, you return them. Returns are a luxury you have when purchasing products. No such luxury exists when buying a business. There is no return policy. It better be a good fit before you buy it. So, what do I mean by a good fit?

• Operational and cultural fit – In addition to strong company culture noted above, the acquired culture should be a compatible with your own. If everyone isn’t on board, you’ll never leave the dock. In addition, complementary skills, processes, products and services can lead to operational synergies.
• Strategic fit – The target company should fit nicely into your long-term goals and current go-to- market strategy. Will the acquisition help your market position and competitive dynamics? Will it further your brand reputation and increase market share? These are good questions to ask yourself.
• Financial fit – The company should be the right size and integrate seamlessly into your current financial structure. Can you afford it without breaking the bank? Is the valuation attractive? Is the growth potential there? Do you expect the transaction to be accretive? The answers to these questions should be yes.

Is it the right time?

You’ve been told you can’t time the market, which is sound advice for stock investors but not so much for the M&A market. There is absolutely a right and a wrong time to make an acquisition. Only once you have determined the target business is quality and the right fit can you move on to market and valuation assessments.

• Market Assessment – Consider the current economic environment and industry trends. What are the prevailing interest rates, inflation readings, and GDP estimates? Is the business cyclical or seasonal? Sometimes, economic downturns can offer opportunities for strategic acquisitions at lower prices. When assessing market conditions and future expectations consider if now is the best time for your company to make an acquisition.
• Valuation Assessment – Is the valuation of the target business a fair price that is indicative of the combined companies’ earnings potential? Does the purchase price allow for a market rate of return compared to similar or alternative investments? If you are not going to get compensated for your investment, then there is no reason to bear the tremendous risk that comes with an acquisition.

The Role of Buy-Side Consultants

Buy-side consultants serve as trusted advisors to investors seeking to identify, evaluate, and acquire businesses. At Adamy, our expertise extends beyond financial analysis to encompass deep industry knowledge, strategic due diligence, and alignment with client objectives. Below are some of the key services Adamy professionals provide to our buyer clients.

1. Market Research: Conduct rigorous market research to ensure potential acquisition target aligns with the client’s strategic goals and financial criteria. This process involves analyzing industry trends, competitive landscapes, and growth projections to pinpoint opportunities for value creation.
2. Due Diligence and Risk Assessment: Assess financial health, operational efficiencies, and market positioning of target companies to provide comprehensive risk assessments and valuation insights.
3. Transaction Structuring and Negotiation: Aid in structuring transactions to optimize deal terms and maximize investor returns. Can help negotiate purchase price, purchase agreements and letters of intent, refer financing partners, and consult on various other deal issues.
4. Post-Acquisition Integration and Value Creation: Successful acquisitions do not end with the transaction. We support clients in executing post-acquisition integration strategies to realize synergies, optimize operational efficiencies, and drive sustainable growth.

Adamy is a trusted resource you can rely on when making an acquisition. Don’t make any impulse buys without seeking guidance from someone you can trust. Give us a call.

From Your Consultant,
Adamy Valuation