In the world of mergers and acquisitions, owners are almost always looking for buyers willing to pay a high multiple for their company. While terms and conditions of the acquisition are to be considered, the initial hurdle is always valuation. Enter the opportunistic buyer.
An opportunistic buyer is likely to pay a much higher multiple when introduced to a company with overly attractive attributes, ones that are coveted by the buyer. Recent transactions, involving opportunistic buyers, have been completed at multiples of 8 to 9 times EBITDA. However, this type of exit opportunity does not happen on its own. It takes a trusted third party, one who is familiar with both companies, to facilitate this type of transaction.
Financial vs Strategic vs Opportunistic Buyers
Most people understand that there are many ways to exit a business. Most common is the engagement of an investment banking or advisory firm to run a “sell-side process”, one that will typically uncover a handful of interested buyers (at that moment in time). Those buyers fall into two general categories: the financial buyer and the strategic buyer. The process only yields buyers who are actively looking for acquisitions at that moment in time.
As most of us know, the strategic buyer is the one all sellers want to identify. The strategic buyer typically pays the highest multiples for companies (can be a 10 multiple of EBITDA or higher), while the financial buyer typically pays a basic market multiple (usually a 4 to 6.5 multiple of EBITDA). In this instance, the selling company has product/service offerings that are similar to the buyer.
The company selling to a strategic buyer usually has some product/service that is very unique and not readily available through other companies in the industry. When this is viewed as valuable, the resulting multiple paid is much higher than the financial buyer, often exceeding 10 times EBITDA.
The company selling to an opportunistic buyer usually has product/service offerings (not necessarily unique) that are needed by the buyer, along with geographic and market segment coverage that are very appealing to the buyer. Timing also plays a role.
Benefits of Opportunistic Transactions
Aside from the higher multiple, the following is a list of other benefits when working with an opportunistic buyer:
- No commitment to a lengthy/expensive/resource consuming sell-side process
- No transaction fees (fees are paid by the buyer)
- No market exposure (contrary to the sell-side process, where the market has knowledge the seller is interested in selling due to the amount of activity)
- Minimal upfront time commitment
How the Process Works
Penn Valley will work with you to develop a Business Snapshot. The Business Snapshot is a multi-tab spreadsheet containing summary-level financial, organizational and market information. It is developed and presented to a potential Opportunistic Buyer in anonymous fashion. The development process usually takes a few days to complete and there are no fees associated with this effort.
What happens next is all about timing. Communicating with potential buyers on a daily basis, has its advantages. Armed with the knowledge contained in the Business Snapshot, it becomes clear when a buyer has the potential to become an opportunistic buyer and pay a much higher multiple for the seller’s company.
Approval to show the Business Snapshot to the Opportunistic Buyer is needed prior to any release of information. Based on the Business Snapshot, the buyer then provides an indication of interest. This includes a valuation range, of what they are willing to pay for the company. If the valuation is acceptable, the deal moves forward.
Successful Conclusion
Once all parties agree to terms, the deal moves through due diligence to close. Due to the high interest of the buyer, these types of deals almost always make it to closing. In the past twenty years, no Penn Valley sponsored deal has failed to close.