Picture this. In some boardroom, right now, there is a high-level planning meeting going on in which the executives are discussing their company's strategic needs. They have described a need, and that need is you.

Who will buy your company and why? The company that needs what you have will buy you. It will do so because it can leverage your competencies in ways that will benefit that company far beyond the cost of building those competencies internally.

Our job, as a merger-and-acquisition firm, is to find companies that need what our client company has and make those potential acquirers aware of how they we can meet their needs.

Transition Happens
There comes a time in the life of every company when its ownership will transfer. There are four common transfer options. The first two involve external buyers and the second two are internal. They are listed in descending order of the value you will receive.

1. Strategic buyers are typically other corporations that bring synergy and additional strengths along with the purchase price. These buyers usually will pay the highest price. They have needs that the seller's company provides.
2. Financial buyers are likely to be equity funds or private individuals. They can provide capital and management guidance to take a company to next level. Some equity funds become strategic buyers when they acquire add-on companies to complement one of their existing portfolio companies.
3. Employees often acquire companies from the owners. ESOPs (employee stock option plans) have been effective in conveying ownership to employees. While employees with ownership generally have greater performance motivation, the value of the company is typically weighted by historic performance and is typically lower than a strategic value.
4. Children are often the path of least resistance when transferring ownership, but the worst option in terms of value. Too often, parents gift the company to their children at the expense of a fully funded retirement.

All four of the above options are possible. We believe, regardless of which option is currently preferred, a responsibility of ownership is to understand whom an outside buyer might be when the time comes to exit. A business owner with a clear understanding of probable future buyer types will operate the business differently other owners. The time spent evaluating and managing an exit strategy can provide financial returns far beyond most other management or owner activities.

Identifying Potential Buyers
Who needs your business? To answer that question, determine who needs what you bring and, just as importantly, who brings what you need. That is the key.

They are not the usual suspects - competitors, suppliers and companies actively seeking acquisitions. We find that two-thirds of the prospects we identify as having a strategic fit with our clients are companies not actively seeking acquisitions…until the right strategic opportunity is presented to them. Given the opportunity to acquire the solution to their needs, they typically respond quickly.

We speak of complementary competencies in identifying potential buyers. First examine your company's strengths and weaknesses in different competencies. Do you have superior products but lack adequate distribution and sales representation? Then look for a corporation with a strong sales force and proven channels of distribution, that would benefit from selling your products. Be creative. Think beyond your markets, your industry and deeply explore the capabilities you have that can be leveraged.

Competencies to assess in this way are:

• Products;
• Manufacturing;
• Processes;
• Sales force;
• Customers;
• Name recognition;
• Distribution;
• Technology; and
• Information systems.

As an example, we just recently represented WD-40 Company in its acquisition of HPD Holdings Corporation. WD-40's strategy was to make acquisitions that reduce its dependence upon the "WD-40" product line, and acquire brands that could improve its market strength in the grocery channel.

HPD Holdings was identified because its products included three major retail brands sold primarily in the grocery channel; "X-14," "2000 Flushes" and "Carpet Fresh." The acquisition clearly met WD-40's strategic needs and the products fit perfectly with the WD-40 image.

Also, the sellers realized their strategic objectives a buyer with a solid market position in the hardware, auto and international market channels that could maximize their brand's potential beyond the grocery channel. Each company's competencies have been leveraged through this transaction.

Doing the Research
The process begins with a brainstorming session among the owners ant trusted advisors. Identify companies and industry sectors that could benefit from your company's competencies. Think broadly.

Then use business tools such as the D&B Inc. MarketPlace (a purchasable CD-ROM database), Internet search engines such as Google, Hoover's, Dow-Jones News Service, 10K Wizard, Yahoo finance and Multex. Don't forget trade publications, on-line industry information (from associations, etc.), local newspapers on-line archives and the actual Websites of companies you identify using these tools. The purpose of the research is to develop a unique and creative list of potential buyers to track and follow over time.

One additional note: Higher transaction values can be achieved if you have attracted multiple buyers, and even higher values occur if the buyers have differing motivations to own your company. Your company becomes the "prize" in a private auction to those buyers. But managing that sophisticated auction process is nearly impossible to do yourself, which is where the value of a professional intermediary comes into play.

The longer you know who should own your company and why, the better the prospects for a high-value sale. Having this "buyer" vision will guide you in making key decisions that will impact future value. You will also be able to begin developing strategic relationships, conducting industry research, gathering data on individual buyers and enhancing the overall visibility of your company as an attractive acquisition candidate.

Armed with this information, now picture that high-level meeting in an unknown boardroom where the needs that are discussed are your company's strengths. Keep this mental image as you move forward with this process.

Phillip L. Currie is Managing Partner of Shoreline Partners LLC, a San Diego-based, middle market investment banking firm that handles sales of privately held companies with $10 to $200 million in revenue and acquisitions for public companies. Currie can be reached at 858/587-9800 or via Email.