Now more than ever entrepreneurs are being inundated with inbound inquiries about M&A and or funding. With the flooding of inquiries, and entrepreneurs busy running their companies, how are they to know who to speak with vs. ignore? See below for upfront questions to ask to avoid a long-winded, premature discussion, that is likely to end in “your company is not a fit at this time, yet we would like to stay in touch”, or even worse, getting dragged through an unsuccessful deal process, while not disregarding a potential top tier investment firm or acquirer.

  • Questions to Qualify Investors or Buyers, and Key Insights:
    • Who are they?
      • investor (private equity or venture capital)
      • strategic (larger well funded competitive/complementary business doing acquisitions)
      • advisor (may represent the above and or have deep domain expertise)
    • Investment and Acquisition Criteria?
      • Minimum revenue, profit (EBITDA), growth, other (recurring revenue, customer concentration, etc.)
      • Minimum check size and sweet spot?
      • Be mindful that if you are not in their target size range, its highly unlikely they can proceed with a transaction. These groups have mandates they are committed to with their investor base, and rarely go astray
    • Does the investor have a fund? If so, how big, and how much dry powder?
      • If they do not, where do they get their capital from? Have they done any deals thus far?
      • Be mindful of the risks/challenges of a group without a fund who has not done a deal. These groups are flooding the markets and muddying the waters. Generally, they have the hardest time closing and pay the lowest valuation
    • Why are they reaching out?
      • What are their vertical focus areas and past deal experience herein?
      • Do they have specific experience, ideas, or knowledge of your core vertical?
      • Be mindful of a group’s vertical focus which if they are not tech focused, they may want to look at deals, yet it will be a stretch for them to proceed, achieve a market valuation and close
    • What type of deal is their preference?
      • Buy-out/control deal, or minority/non-control deal?
      • Some say they do both, yet vast majority are one or the other
    • Investment/Acquisition Activity?
      • How many deals have they done in the last 24 months?
      • Be mindful of those who have not done many deals. Suggests the likelihood of proceeding with you is lower

 

  • How to Cherry pick the best folks to speak with:
    • Those who align best with your company profile (a match on company size and performance)
    • Match on your desired transaction and structure
    • Have a committed fund with significant dry powder
    • Have deep expertise, industry knowledge and can express why they are interested in your vertical. These are the ones who are most likely to add value beyond capital vs. those who claim they do
    • Preferably they have done deals in an around your space going back many years and have a clear investment/acquisition thesis
    • Any/all strategic acquirers, or the investment firm or advisor representing the strategic (assumes the strategic is much larger than your company and in good financial health, with investor backing)
    • The investor or buyer is generally active, e.g. they have been doing deals in the last 12-24 months (this is especially critical during the pandemic, where most firms are idle)
    • Assuming all the above which can be validated with a few quick emails back and forth, it is advisable to get to know the person who reached out, better understand their interest, strategy, and establish a dialogue

This should better inform entrepreneurs on how to quickly qualify inquiries and ensure their time is spent wisely with the most appropriate, high quality parties. Harbor Ridge Capital advises business owners through the many nuances and complexities of a transaction, and often engages with clients on flushing out investor/buyer inquiries. This includes understanding their true interest level, valuation, deal structure, financial information review, term sheet, and related, while reaching out to the many highly strategic parties who have not inquired, as well as working to ensure optimal company positioning and transaction process management.