Looking Into Buying a Company? Read This First!

Did you know that buying companies as a giant conglomerate is the new trend these days?

Have you ever noticed that it is becoming more of a norm to see companies having giant companies backed behind them? For example, Amazon owns all these other companies below them, like Ring, Twitch, Whole Foods. Another example - Microsoft owns LinkedIn, GitHub, and Activision Blizzard. Or, not necessarily a COMPANY but Elon Musk majorily holding Tesla, SpaceX, Twitter, and so on. Nowadays “the strategy” to generating wealth is venturing into other spaces and scaling them. Is this late stage capitalism?

From 2019 to 2023, M&A activity surged 237% according to a Fidelity survey. Competition in the M&A space is booming as the economy trends toward rising interest rates, inflation, and geopolitical strife. This causes smaller companies to list themselves up for sale, and bigger companies gaining more traction and resources to outright pick and choose companies to buy.

https://www.investopedia.com/investment-advisory-merger-activity-triples-7553859?

I'm here to tell you exactly what these conglomerates look for in a potential acquisition. These metrics that heavily depend on the industry being looked at, the opportunities that the conglomerate can offer and deploy to scale and profit, EVERYTHING. It takes a lot of back and forth during these deals to gather all the information required, and ultimately make that final decision toward signing that LOI or walking away from it because something fishy got dug up and smells suspicious. These numbers tell a story, and you have to make sure to make these connections to paint that interpretation.

Some context - My parent company had a genius idea to split up their "holdings" into various groups to work together and find the next company for them to acquire. Granted, we were all amateurs and not really M&A experts, however the parent company had ties to M&A professionals that helped the executives make that decision, and each group had 1 hour allotted to asking him for advice. Let me tell you - this is a genius idea to sift through all the listings out on the market. Divide and conquer, and whoever is able to help close that deal gets the competition prize money and perpetual earnings of that company, so long as you stay employed within the company or connected companies. The winning group is decided by a shark-tank like competition where the judges get together to invest in a company and move forward with the deal after hearing all the pitches.

It prepared all of us to be better each year of doing this competition before the company retreats, and you can really tell the quality of pitches have continually topped one another each year and new unique approaches and considerations are being brought forward. The learning process never ends as considerations, requirements, and the landscape continually change, and I personally find myself learning new things each and every year and adding new things to my process when going through these competitions.

The first key takeaway is ensuring that you are only looking at industries that you, or your organization, can actually handle. If you are a blue collar company that does manual labor, and you are looking to seek a professional accounting firm or law practice, that is not going to work. The biggest tip is to create a list of related companies or opportunities you seek to be a right fit. In my case, the parent company was a staffing company that excelled in acquiring related companies in order to scale. Medical staffing was a huge success during COVID, and that was one of the clearest cut successes. The company that my group pitched was just that, which great financial standing and other benefits. This ended up winning the competition and to this day I am still collecting earnings from passively. Our executives did make it easier for our search by listing categories they do not wish to invest in - crypto-based, startups under a certain purchase price, no financial companies, and so on. Within our group, we also made sure to ensure it is relevant and feasible to actually enter that space. For example, medical practices or highly professional accounting or law firms we excluded, or even highly technical related companies. We also made sure to limit the outreach toward staffing-related companies unless they were REALLY good financial standing or other key considerations that supported it. We noticed that it may be too concentrated, since in previous acquisitions the executives have acquired many of them already.

Trying to get into their heads and see what they would say, or what a M&A expert would say, really helps, especially with taking into consideration the feedback provided from not only our meetings with the M&A expert, but on stage just noting what criticisms were being given out by the judges panel. This structure and approach is one of the most unique experiences I have ever had the privilege of participating in, because it may have been benefiting the company in searching for the next opportunity to make bank, but for me it was a great learning experience without having to go to school for, or getting into connections with professionals. This was direct experience and insight I gained from my 4 times conducting these group projects, 3 of which I was put in a leadership role to organize and guide the necessary process needed leading to the presentations. I have a bunch of other tips from what I have learned, many of which is “competiton-specific” which may not apply to you, or industry specific where certain financial metrics are more considered or looked at than others. But in general or overall ,these are things to look out for when looking to acquire a company. I hope that one day I would be able to be on the other end, where I am facilitating or negotiating the closing of an acquisition deal and learn the process in how to scale post-acquisition. But before then, there is plenty to learn in the steps before acquiring a company which is always changing. I look forward to developing myself further in this space whenever the opportunity rises again.