Let's Source a Deal: Part II
By Robert Befidi, Jr. and Mark R. Sinatra
In Part I of this series, we shared our perspective on mainstream deal
sourcing. In this second and final installment, we will address proprietary
Unlike mainstream deals, proprietary deals are transactions that do not
involve a sell-side advisor, such as an investment bank or business broker.
The main benefits for buyers are confidentiality and limited competition
on proprietary deals. In addition, there are several reasons why a business
owner would consider selling his/her business on a proprietary basis.
First, business owners can save money on investment banking fees, which
range from 2 to 7 percent or more of the total transaction value, with
some banks requiring a $1 million minimum fee. Second, since many business
owners have never sold a business, they will work with their trusted advisor,
usually an accountant or attorney, to lead the process rather than working
with an investment banker with whom they are not familiar. Finally, as
business becomes increasingly competitive, owners are often concerned
with the release of confidential information or details on the sale of
their business. Therefore, a proprietary deal allows them to control the
process and limit the number of involved parties.
Proprietary deal sourcing strategies can be broadly divided into two
parts: external strategies and internal strategies.
External strategies involve identifying, managing and retaining relationships
with buy-side advisors. Buy-side advisors are business intermediaries
who execute targeted searches on behalf of their clients, which can include
both strategic and financial buyers. The benefits of using a buy-side
advisor are that it allows the buyer to focus on its core competencies
while leveraging the expertise of an outside group which results in high
quality, high volume proprietary deal flow. The downside of this strategy
is the ongoing cost of retaining the services of a buy-side firm. Ultimately,
buyers should ensure that their buy-side advisor is able to articulate
their unique value proposition to target companies.
Generally considered the most resource-intensive and difficult deal sourcing
approach used by acquiring entities, internal strategies for proprietary
deal sourcing involve directly contacting business owners. Internal strategies
include a set of practices, processes and activities centered on targeting,
identifying, and acquiring great companies that are “not for sale.”
Starting with an investment thesis, based on industry, geography, or company
type, buyers can find these deals with a significant amount of targeted
and opportunistic networking, diligence, creativity and patience. In practice,
this is achieved by doing the following:
Networking with business advisors such as attorneys, accountants, estate
planners, and consultants; joining industry and regional business associations;
attending relevant trade and industry conferences and soliciting the help
of friends and family.
Providing incentives for referrals; at Gordian Capital, we offer a finder’s
fee for an introduction to the owner of a company that is acquired by
Implementing processes for identifying and communicating with business
owners of companies of interest.
Devoting resources to pre-screening, researching and staying current
with developments in targeted industries.
Capital: Gordian Capital LLC (“Gordian”) is a private
investment firm that seeks to acquire and actively operate a privately-held
company with revenues of $5-$50 million located in the U.S. or Canada.
Gordian is unique in that its managers will assume senior management responsibility
of the acquired company; thereby offering an ideal exit opportunity for
owners who seek to partially or fully remove themselves from day-to-day
operations. Gordian’s primary objective is to continue the long-term
growth of the acquired company, while ensuring that the owner’s
legacy and employees’ welfare are maintained.
To learn more about Gordian, please visit www.gordiancapital.com
Please feel free to contact us to learn more about Gordian Capital, LLC
or to discuss a specific investment opportunity. All material
is kept strictly confidential and returned upon request. We will review
and provide feedback for all opportunities we receive in a timely manner;
generally within one business week.
Robert Befidi, Jr.
Direct: (646) 620-1552
Mark R. Sinatra
Direct: (646) 620-2054