It is a very busy time in the M&A world. Many owners in the electronics industry, especially in the PCB and EMS sectors, are of retirement age. Meanwhile, there is a lot of interest from both competitors and private equity firms in making acquisitions in the space. Because there are a lot of deals happening, it is important to know how to stand out compared to other sellers. Even in what many would describe as a seller’s market, knowing how to best describe your business, as well as the pros and cons, can help get a higher valuation, better terms, and ensure a smoother deal.
What is unique about your company? Your baby is probably not made out of gold, but it still may be a very nice baby. One of the best ways to find out more about your company is to ask others. It can be very revealing to hear what customers, employees, outside reps, suppliers, and others think about your business. The findings can be used in discussions with buyers, and of course can be used in sales and marketing materials as well as in discussions on how to improve the business. Often, the owner’s vision of the company is either dated or different from the perception of the outside business world. For example, a company might have what they think is a niche product or service, but if only a few companies in the U.S. can still provide those services there may be a larger potential market for the providers that have survived.
Different buyers will have different viewpoints on the value of the business as well as the pros and cons. While the pros can be catalysts for growth for the buyer, the cons can be turned into opportunities. For example, many smaller companies do not have much of a sales network nor a marketing presence. A larger buyer can take advantage of a wider sales network in order to grow revenue. Old equipment? That’s an opportunity for a buyer to make investments and improve the company’s efficiencies. An owner should be able to discuss the pros and cons of the business without pumping up the plusses too much or ignoring the negatives.
Another way to stand out is to be prepared. Many company owners do not have adequate financial reporting or key performance indicators (KPIs) readily available for discussion. If a buyer (or their young analyst) asks for your “latest KPIs,” rather than asking what a KPI is, it’s great to be able to discuss those items readily. Many buyers are interested in the company’s history—for about five minutes—but really they are interested in a few basic things, including:
- Future earnings
- Stability of earnings
- Growth and cost synergies
Owners who can quickly, coherently, and frankly discuss the key things that buyers are interested in will have a leg up on the competition. It is good to get the message down with the help of advisors, then practice how to talk about the company. Be sure to back up your statements with facts, not fluff.
One interesting method of grabbing buyers’ attentions would be to know the local competition well, including who could be a willing seller as a consolidation into your facility. Perhaps the other company would bring in certain capabilities and staff, which could complement some of your weaknesses. Having an objective viewpoint on how your company lines up with the competition, as well as setting up some potential deals in advance, can be very interesting for many buyers.
Finally, it is very important to have a realistic idea of valuation, terms, and the general process involved in selling. Buyers are always concerned that they will spend a lot of time working on a deal, only to have a seller pull the rug out or make outrageous demands late in the process. By showing that you have a good handle on information, can speak clearly about the company’s pros and cons, and have realistic expectations, it gives buyers more confidence in the owner, the company, and the prospects for the future. That will certainly help the company stand out from other sellers and lead to a better deal.
Tom Kastner is the president of GP Ventures, an investment banking firm focused on sell-side and buy-side transactions in the tech and electronics industries. GP Ventures has offices in Chicago and Tokyo, with five people in total. Tom Kastner is a registered representative of, and securities transactions are conducted through StillPoint Capital, LLC—a Tampa, Florida, member of FINRA and SIPC. StillPoint Capital is not affiliated with GP Ventures.