How Do You Make A Great Buyer List?

Are you looking to sell a business? Congrats! You'll need a list of potential suitors to buy it. First off, what fields should be in a potential buyers list?

Buyer Facts:

• Type of Buyer (Strategic, Family Office, PE Firm, Search Fund)
• Latest Fund Size
• Estimated Dry Powder
• Parent Company
• HQ (Optional)
• Short Description (Optional)

Acquisition Preferences:

• Target Revenue
• Target EBITDA
• Target Check Size
• Target Acquisition Size
• Control Preferences
• Geographic Focuses
• Industry Expertise

Relevant Acquisitions:

• Acquired Company Description
• Acquisition Date

Relevant Decision Maker at Potential Buying Firm:

• Contact Info
• Biography
• Board Representation

What Can a Selling Company’s Founder/Board Do Themselves?

You can use Scend to get all of this info in under a minute. However, if you wanted to use other tools because you think I'm biased, there are certainly other ways! As a founder myself who's worked in M&A and PE, if I were to put myself in the shoes of a founder selling his/her company, here’s how I’d proceed without Scend:

• Access Financial Databases: I would figure out pricing and subscription costs to get the top potential buyers on Pitchbook, Crunchbase, or CapitalIQ. These are great tools that I had used for many years at my past jobs! Generally, you’ll want to access to more than one of these platforms as there are usually some gaps in coverage for each of these (and data is not always 100% accurate but improves with the higher cost providers). They can range from $1,000 per license per year all the way up to $30,000 per license per year.
• Build a Google Spreadsheet: Once you’re on these platforms, you’re going to want to find two cohorts of buyers: (1) strategic buyers and (2) financial buyers. 
  • Strategic buyers are companies that create actual products or deliver services while financial buyers are asset managers that buy and sell companies. For strategic acquirers, you’ll want to find your largest competitors that are acquiring similar companies to you in your space. You should also consider companies that are your suppliers or end customers that may also be interested in vertically integrating.
  • Financial buyers are usually PE firms or other large financial institutions. To find financial buyers, you should filter investors in the financial databases that invest in companies that fit your company’s profile. For example, if your company is worth $100 million but a PE firm only buys companies north of $1 billion, don’t bother putting them on your list. Some databases like Pitchbook have this level of detail on buyers while most are lacking.
• Populate Buyer Lead Details. Go to each buyer’s website and add their investment preferences to your Google spreadsheet.
• Populate Relevant Acquisition History. Look through their portfolio companies or press releases to see what acquisitions they’ve made to figure out if they truly have interest and expertise in your domain. 
• Remove Potential Conflicts: There may be certain strategic investors or financial buyers that own your competitors that you don’t want to tell that you’re selling. You may be fine telling them you’re selling but may not want to send them any company secrets or detailed financial data.
• Source the Decision Maker. Look through press releases or a company’s team page to see which senior investors or corporate development folks have made acquisitions or are on boards of companies similar to yours.
• Access Contact Databases. While you may know the decision makers’ title and name, you may not have access to their email or phone number. As such, you’ll generally need to pay for a tool like Zoominfo, Apollo.io, Seamless AI, Hunter, or Clay.
• If you go through these steps, you should have quite a long list of potential buyers to contact to see if they’d like to provide an attractive offer for your business!

Why do you need an investment bank then?

Time-Consuming Work

Collecting that much info about hundreds of potential buyers takes days of manually grinding through lots of websites, press releases, and databases. They have armies of M&A analysts to spend 80 hours a week to find more options for you. They'll keep looking for more buyers while you give up from exhaustion.

Expertise & Proprietary Information

Because investment bankers spend all day working on selling businesses, they tend to have insights that are not publicly available. Some specialists also have amazing industry knowledge! Just be wary as some people project expertise but are just selling confidence. Here are some ways they can add detail:

• Sector-focused bankers tend to have a Rolodex of at least 20 strong buyers for you. They talk to buyers daily and have a pulse of what's exciting for them.
• If a buyer has limited dry powder and cannot invest due to timing or limited capital left to deploy, bankers may know
• They may know that the buyer is only looking to get private company data and a free peek but is not interested in the space because they never bid on similar assets
• Bankers may know which have horrible reputations towards their portfolio companies
• Do buyers have limited value-adds outside money? If you need partners with relationships to open doors in your industry, you may not want generic investors
• Which buyers have already bid on similar companies recently? Bankers tend to know that market intel!
• They have a good understanding of which buyers are aggressive in large auction processes versus those that shine during limited-access auctions
• They have existing relationships with the proper decision-makers and know their contact information when it’s not publicly available

Lower Upfront Costs

Bankers charge high success fees (2% to 10% of enterprise value) only if your company is sold but otherwise are generally free upfront or set low retainer fees. If you can use them and not have to pay for the license fees of the aforementioned databases, then you can limit your upfront spending and align your cash inflows from the sale with outflows of transaction costs.

How should you evaluate your options?

Here's the simplest decision tree:

• You're ultra-confident or did banking or know all the possible buyers: go through the buyer list process yourself
• You need some handholding: hire an investment bank!
• You know bankers have some blind spots and are human: ask the investment bank to supplement their work with Scend. We are not claiming to be better than a team of extremely hard-working professionals. However, we already have bankers using us to speed up their buyer list generation, supplement their lists, and fact-check their suggestions. We support bankers and help ensure that the auction process is as comprehensive as it can be!