Search Focus
January 29, 2019
by a searcher from University of Pennsylvania - The Wharton School in Silicon Valley, CA, USA
I’m contemplating a fairly focused geographic search (2-3 metro areas). Can anyone advise to what extent a geographically focused search is likely to make it difficult to make an acquisition, and how search PE investors feel about geographically focused searches?
from Babson College in Boston, MA, USA
It takes a different sourcing strategy. Its a numbers game, and you'll need to adapt your strategy and tactics.
First, strategy...yes, as already mentioned you may need to look at smaller businesses....at first....but I would focus on "total equity exposure" over time and not just upon the first acquisition. If you can acquire once, you likely can do it again. Focus sectors/niches where you can grow through acquisition, and not just based on organic means. Your strategy is to acquire a platform company, not one with great "organic" growth possibilities You will likely not find any "platform ready" companies and will need to drive operational excellence in your acquisition first then grow by follow-on acquisition after you created the needed FCF through efficiencies.
Second. Tactics....you'll need to transition industries faster than a national search. A national searcher and you may choose XYZ sector to target. A national searcher has a target list of 400 companies in that space....your is likely less than 100. Many searchers reach out to over 4,000 targets before acquiring. Where as a national searcher may need to look at 3-6 industries in order to acquire, you may need to look at###-###-#### in order to look at enough in order to find your business. This is the challenge as good industry research is necessary. We do not "attack blind" and must always reconnoiter our target industries to know a good opportunity when we see one.
HOW TO TRANSITION FASTER?
-You'll need interns. In a regional search some folk like to skip the interns. Don't. They need to be identifying and prepping future industries (the one's you shift to when your current focus doesn't pan out) in advance so that you don't loose momentum. Also, just because you've ID'd the next 2-3 focus industries, doesn't mean you know how to approach them. You'll need to have interns research the networks and key people in those industries for you so you can determine if you CAN search effectively in those industries. You'll need interns working across 3 time horizons:
-60-90 days out: Interns develop scorecards for 8-10 new sub-sectors/niches in your target area, and brief you for a decision as to which "top 5" to develop further.
-30-60 days out: Interns dive deeper into the people that occupy these industries and find accountants, intermediaries, river guides, and bankers that serve these 5 industries. Prospecting lists are also developed. They present this to you for a decision on which 2-3 industries you'll choose to prospect in. You'll decide based upon how well you can develop inroads into those industries (better lists, more intermediaries, better conversations with river guides, etc.)
-0-30 days out: You're prospecting. Email, snail mail, cold calls, etc.
TIP: Organize interns comprised of Under Grad and Grad students. Give the grad student interns something no one else gives them....a chance to prove they can lead. This is what attracts Grad/MBA interns. These MBA interns are your "lieutenants" and they run the Undergrad intern muscle for you. You establish the workflow, meetings, systems, etc. Grad interns run the Undergrad interns, you run the MBA interns/process. This keeps you where you need to be....talking with sellers.
TIP: Bring on interns for 90 day internships and rotate them through all three roles (Current Industry, Future Industry, and Industry Selection) Run a 14-day workflow...a 2 week cycle. 20 hours/week/intern in semester. 40 hours/week/intern out of semester. Each interns spends 2 cycles in each role. They build deeper knowledge in the industries this way, going from 10 to 5 to 3. Have 3 teams, led by an MBA interns. 4-6 UGrad interns per team. Organize interns into buddy teams of 2 and give out work to the buddy teams, not individuals. The peer accountability ensure each interns pulls his/her weight and keeps them focused. Harder to "drift off" in pairs. The Current Industry teams is your Sales team, Future Industry team is your Marketing team.
TIP: Run 4 cohorts of interns/year. As the best MBA intern to return for another cohort as your deputy to run the inside sales/marketing, while you focus on outside sales with sellers. Just as you can offer a "finders fee" to a river guide, you may consider offering something similar (and much much smaller) to your "deputy". This can be much cheaper than taking on a partner to search.
No plan is perfect, but in a geographic search your enemy is the time spent switching industries and getting spun up. Use interns, lots of them, and give MBA interns a win-win experience that will help them get hired as managers. Partner with you local MBA programs to set this up. It will take about a full-month to set up a system like this, but the time saved over the next 23 months will justify the investment.
PM me if you want to get into specifics.
from University of West Florida in Pensacola, FL, USA