Finding the right buyer isn’t easy. There are many criteria to consider, some definitive and highly determinable, such as baseline financial requirements, industry relevance, geographic fit. But these are only the baseline, and they do not drive the optimal outcome. The optimal outcome incorporates expertise on the future strategy the buyer wishes to pursue, incorporates the psychology of decision makers on both sides, and teases out the most acute reasons why a buyer is willing to win the deal. This requires enormous work and is part of the art of great M&A advice.
Because the list of criteria is so complex and incorporates so many concrete and more esoteric variables, deal professionals continue to seek out tools and information that help them accomplish this work more successfully. This has led to the emergence of specialized networks and information tools, many of which are now available online. But when deal professionals bring their M&A-related activities and strategy online, there is a set of attendant issues and risks which, if they don’t plan for, will only create more work and less success. The internet, while expanding one’s network of potential buyers, does not guarantee that these buyers are necessarily qualified or are accredited investors. Engaging in conversations with unqualified buyers can be irksome, a waste of time and even potentially legally hazardous.
If you have ever used any unregulated networks or social media, you are well aware of these three major issues:
Low Barriers to Entry
In an open network, there are effectively no barriers to entry. Anyone with a computer, interest, and a small bit of knowledge is capable of joining the network. As a result, the network can become populated with inexperienced and ineligible buyers. The consequences of such an undeveloped population can be harmful to your business.
Take, for example, your (hypothetical) decision to post some of the details of your latest asset sale in an M&A group on LinkedIn (since asset sales aren’t subject to general solicitation in many cases). Your post is successful and you are approached by a previously unknown buyer. All of his investment criteria matches your deal and he seems like the perfect buyer.
Two months and countless hours later, the process comes to an abrupt halt. As it turns out, this buyer is unable to complete the deal you have been discussing for the past few months. As an underdeveloped buyer, he was not cognizant of the multidimensional aspects of concluding a deal. He thought investing some capital was straightforward or getting the required loans were simple. His error wasted months of your time – all time that could have been used pursuing a legitimate buyer. Now you have even less time left on your mandate to complete the deal.
These unqualified professionals cost you your most scarce resource: your time. Moreover, SEC requirements around solicitation of unaccreddited investors can have you running the risk of legal or SEC / FINRA action. The last thing you want is to run into the next Anthony Fields.
Similar risks are faced by entrepreneurs looking to raise capital. Entrepreneurs, often experts in their fields of work, are often unaware of the differences between accredited and unaccredited investors, increasing the risk that they entertain financing discussions with bad actors or unreliable capital sources. Entrepreneurs, like M&A professionals, benefit from exclusively interacting with accredited professionals when seeking financing for their ventures.
Needle in a Haystack
When operating in such a heterogeneous, unregulated network, finding a qualified professional is much like finding a needle in a haystack. You know the professional must be out there – somewhere – but you just don’t know where. It requires time and effort to trudge through the thick of unqualified members.
You initially joined the online network to expand your potential buyer list. Although you may ultimately find a handful of valuable new contacts, there is a clear net loss. Finding one new contact has cost you hours of time and a few grey hairs.
Offline and in-person, it’s easier to vet potential buyers. You attend ACG events, you spend time at your local country club where it’s likely many members are accredited, and you call on business owners that you know are running profitable multi-million dollar companies. By looking in the right places, you find the right type of buyers. Accreditation is usually not an issue.
When you work online, you need to use the same approach and adhere to the same standards; otherwise you’re wasting your time. Find the places where accredited investors and qualified deal professionals congregate.
Axial is an example of an accredited network. Others exist as well. When applying for Axial Membership, each person affirmatively attests to status as an accredited investor or their affiliation with an accredited institution; this is a core aspect of the experience we deliver to Axial Members. You can be certain that every deal, every connection, and every Member is interested in achieving the best and most effective outcomes. You can also be certain that the deep concentration of qualified professionals results in more professionally interactions, and more worthwhile relationships than anywhere else.