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You may be a small company but you don’t have to act like one

by on May 21, 2013

Forget Rule #1

Rule #1 – Act Your Age.

Rule #2 = Forget Rule #1.

You  don’t have to act your age.  You may be a small company, you may be a young company, you may even be a start-up, but you don’t have to act like one.

Big companies grow through acquisitions and strategic transactions all the time.  You can too.  You don’t have to be big act big.

For example, you want to buy another company, you want to sell your company, or you want to create a strategic partnership.  Your Board of Directors has tasked you with moving this forward.  You don’t want to tell your BOD “no” or worse, “I don’t know how.”  What do you do?

You know you need help.  The “traditional” method is to hire a banker.  But you’re too small to get the attention of a banker.  You’re in what I call the Dead Zone. And there are a lot of companies like that.

The Investment Banker Way

The typical route for buying or selling is getting help and the first thing you, as the CEO, think of doing is hiring an Investment Banker.  You probably talk to them all the time.  They’re either soliciting you to hire them to sell your company or take you public, maybe even raise some capital.  They’re also trying to sell you companies all the time.  They are RARELY trying to get you to hire them to buy companies.  Why?  The chances of you buying a company and their getting paid a success fee are pretty low.

A buy-side engagement for them is hard because their overhead costs are high.  They’ll charge a retainer fee, whether you’re buying or selling, but if you’re selling, especially if you’re a “motivated” seller, their likely to get that big payout at the end.  Quite frankly, they’re not working for the retainer fee, they’re working for the success fee, but they need that to cover some operating expenses and to ensure that they have your attention and that you’re serious. But if they’re helping you buy a company the chances of that big payout at the end drop significantly.

There are a lot of companies to look at and you may never find the right company.  If you find the right company it may not be at the right price.  And if you find the right company at the right price, they’re may be some external issues that prevent the deal from closing, like a competitive bid situation, or issues with financing the acquisition, or you might be bought before the deal closes, or you may find another company you like better.  The list of potential issues goes on and on and as a result, the risk of closing a buy-side engagement go up dramatically.  So the investment banker will quite frequently leave you to your own efforts to buy another company.

But there are exceptions and there are bankers with smaller overheads that will help you.  And there are specialists, like The Revenue Group, that can help with a part of the project, like simply identifying a list of likely targets.  If you already have a target in mind and have qualified them somewhat, the chances of a successful payday go up making it more likely that an investment banker will help you if you simply need help in the acquisition process.

Doing it yourself

You can, of course, do it yourself, whether buying of selling.  It makes a lot of sense to hire someone to help you sell the company.  In fact, most CEOs get that and don’t think much about it.  They’re quite comfortable using an I-banker, it’s just a matter of finding the one you want to work with and negotiating the fee.

However when it comes to buying another company, most CEOs don’t hire a banker or any type of adviser for that matter, other than a lawyer.  Why is that?

Most companies can’t afford a full-time corporate development person or department.  The bigger companies can and you expect that they’ll have a person or a department for this function, but small companies rarely do, and small private companies almost never do.  It’s hard to justify a full time person if you’re only doing 1 deal a year or so.

But for that 1 deal, what do they do?  They leverage their existing management team.  They pull them away from their day to day jobs, the ones they’re paid to do, to work on a deal that may or may not happen.  Sure, it doesn’t cost much, that is if you don’t think about the opportunity cost of senior management not focusing on hitting the sales quota, for instance.  No, it doesn’t mean much cash out of pocket but there is still a cost. And the senior management typically has no expertise in this area and it’s hard to develop a skill set if deals are done infrequently so there are problems along the way.


Wouldn’t it be better to outsource this function? Hiring an I-banker is essentially outsourcing but you don’t need a whole firm and you don’t need to pay Wall Street rates.  It’s widely accepted to outsource engineering, accounts receivable, call centers, and cold call lead generation but it also makes sense to outsource corporate and business development.  Pay a little each month to keep someone on retainer, someone to look at all the opportunities you might have, someone to find that right company at the right price, someone to present you with a filtered view of targets that fit the strategic direction and needs of the company.  You don’t have to hire someone full time.  The old-school idea that outsourcing work all goes to some poor person in a 3rd world country that can’t speak English is crap.

What’s holding you back?

Fear.  The effort seems overwhelming and the outcome seems uncertain.  But it’s not.  You will have companies to look at buying and you will have companies interested in buying you.  That’s the point.  That’s the purpose: to be talking to and looking at other companies and opportunities ALL THE TIME.  After all, >95% of companies get acquired.  Big companies buy smaller companies.  That’s the food chain.

You’re in the Dead Zone but you don’t have to go it alone.  You can act like a big company even if you’re not.


If you’re wondering how you build a company that you can sell for a premium in a few years, contact me to discuss the Valuation Amplification Process.

I also invite you to download the white paper and learn the 5 step process on How to Quickly Increase Your Valuation: a Proven 5 Step Process.


From → M&A, Strategy, Valuation

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Trackbacks & Pingbacks

  1. Running an Acquisition Process – How to go about buying another company in 9 steps | Mike Rogers
  2. Acquisition Myths BUSTED | Mike Rogers
  3. Shooting Fish in a Barrel | Mike Rogers
  4. Why is “How do I pay for an acquisition?” even a question? | Mike Rogers

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