Small Business Private Equity

Partnering with Executives to Buy a Small Company

Earlier this week, I got a call from a successful former executive that I’ve known for awhile (let’s call him Jim). Jim called to discuss partnering with Hadley Capital to buy a business. My partners and I enjoy these conversations, and partnering with talented managers is an important part of our strategy.

My first question to Jim was: “Have you identified a company to buy?” Usually when we ask this question the answer is “no” and this time was no different. I told Jim that in my experience he should plan to spend two years in the search for a target company. To Jim, and most executives, this seems like a really long time. Here’s why it takes so long:

  1. It’s hard to find qualified small company acquisition targets

There are literally millions of small companies in the US. However, surprisingly few will be of interest to guys like Jim due to geographic, industry and size preferences. We review more than a thousand acquisition opportunities each year, but only about 5% are legitimate acquisition candidates for us given our particular criteria. My partners and I are searching for companies on a full-time basis and only turn up 8 – 10 really great opportunities each year.

  1. Once a qualified target is identified, it takes a long time to get a deal done

If Jim beat the odds and turned up a target in the early stages of a search, it might take 6 months or more to qualify the target and reach a preliminary deal with a seller. Small company acquisitions take a long time because small companies may not have great books, the seller may be dealing with emotional issues around selling the business, there may be financing issues, etc. It takes Hadley Capital a year, on average, to complete an acquisition from the date of introduction to closing the transaction.

If you are an executive seeking to buy and operate a small company in partnership with a private equity firm, please give us a call. We’d love to talk to you about partnering to buy a small company…even better if you’ve identified the company.