Advice for Entrepreneurs, Mergers and Acquisitions, Selling a Business, Raising Capital, Strategic Advisory
Three places good businesses come from
At Mirus, we work with middle-market companies, typically closely-held and often “organically grown” with the founder(s) still involved. Most of our clients have built their business around particular cultures (customer-oriented, cost-driven, innovation-centered, team-oriented, etc.), strategy (focus, cost, etc.) as well as particular capabilities, often developed following early success with one or more significant customers. Sometimes those capabilities are developed out of adversity.
Here are three (of many) places I’ve seen good companies come from. The paths they took varied, but the businesses behind these strategies all had successful M&A or growth capital transactions.
1. Focus Strategy Following Early Success (or Failure)
I’m thinking of one client that provided a broad range of technical products which, having lost a major customer which brought manufacturing in-house, decided to pursue that customer’s market and developed a competing line that became #1 in their industry. It was truly great execution on a focus strategy – giving up the “broad” job-shop approach to develop a branded product line in a growing, profitable niche. While a “small” company (under $20 million in revenue), it was the leader in its product segment. I sold that client’s business to a much larger provider of complementary products – a situation with strong product synergy.
2. Follow the Customer
Another client grew their business in a developing market in which the government regulations were continually becoming stricter, with more thorough requirements, inspections, documentation etc. They learned as they went, developing capabilities in a series of relatively small steps. Customers came to them every few months with enhanced requirements and more rigorous inspections. They developed into supply-chain partners with their customers and the customers went out of their way to help with guidance on quality systems, etc. In aggregate over 15 years, the investment in capabilities sufficient to meet the requirement was significant, enough so to create a real barrier to entry for potential competitors, but by growing the business along with the developing industry, each step was relatively low risk and low cost.
3. Be at the Right Place at the Right Time
This is nearly impossible to plan for, but is wonderful to leverage. While it’s not really a strategy, knowing when you’re in the right place at the right time is the key to success here. In my experience, most companies who truly find themselves in the right place at the right time get there through pure serendipity. They are in the business because they find the work personally fulfilling, technically challenging, potentially profitable etc. And then something happens in the market. a large player starts investing heavily in the segment and comes to them with an offer, a huge opportunity develops in the market and, rather than partner with this smaller company, the largest competitors decide to acquire it (bidding up the value). Sometimes, a large buyer or investor is interested in consolidating a space (often we’re bringing that idea to them) and getting the right starting point is meaningful. Even a relatively small company, if it has a great reputation, a good team, and the right, scalable, organization, can be worth a lot if it enables market consolidation. The window can be short – buyers will move on. So taking advantage of timing is key. Bringing that opportunity to an industry consolidator can lead to a great M&A outcome.
So, where do good businesses come from? From our perspective, a good business is one that can attract significant investment, either in the form of growth capital or an M&A exit. These businesses are good for a variety of reasons – not all “happy” businesses are alike. The paths they take differ, but telling their stories in ways that resonate with investors and acquirers is important in each case. We’ve seen a lot of success over the years and look forward to appreciating and contributing to your company’s success.
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Alan can be reached at fullerton@merger.com and welcomes hearing, and contributing to, your success story.
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