Buying a company--lessons learned

[rayfinkle]

I'm considering buying a company and would love to get some thoughts on lessons learned from those that have done this themselves. I am currently working on narrowing my search aperture. But for now the possibilities are pretty unconstrained. Specifically, target co ideally has some of the following characteristics:

- Cash flow positive, or with a bulky cost structure that can get to CF+ (I've managed large-scale cost takeouts / turnarounds. This is unpleasant but doable, especially if purchase price reflects the work to be done)

- Can be large or small. I have financial backing to do a bigger deal (e.g., $2-500M in market cap), but smaller is also fine. I'd say small end would be $500k-1M in cash flow to owner

- Prefer software type businesses but have operated and am comfortable with "boots on the ground." In PE days did both, but have operated more in the former recently.

- Can be public (though this is harder to execute for a bunch of reasons) or private

 

I'd appreciate anyone's thoughts on lessons learned (positive or negative). 

 

Thanks!

[Morgan]

I’m very interested in hearing what everyone has to say! 
 

Thanks in advance! 

[LC]

I don't have transformation experience, but two pieces of advice:

 

-need to have a team in place you can rely on

-sometimes, a public execution is necessary

[rayfinkle]

On 4/19/2023 at 7:51 PM, LC said:

I don't have transformation experience, but two pieces of advice:

 

-need to have a team in place you can rely on

-sometimes, a public execution is necessary

Yea 100%

[Saluki]

I was an M&A lawyer in the beginning of my career, and the best advice I would give is don't skimp on the due diligence and make sure the lawyers/advisors that you use are experienced in the type of business that you are buying.  My firm did a lot a cable transactions and once we had a white shoe manhattan firm on the other side, who did a lot of M&A stuff, but not in our industry, and they probably cost their client 2-3x as much because everything took them longer since they didn't know it and had to "get up to speed" on things while billing for the learning curve. I'm sure it would be prohibitively expensive if someone hired us to do a software or pharmaceutical deal, for the same reasons. 

 

It's okay to have different people for different things.  Our clients had a boutique tax law firm that represented a lot of cable companies, and they had a different firm for litigation. Just because you use a firm for, say, the real estate portion of the deal, doesn't mean that the tax or IP people in the firm are just as good.  

[Morgan]

@Saluki good advice! 

[rayfinkle]

On 4/24/2023 at 8:48 AM, Saluki said:

I was an M&A lawyer in the beginning of my career, and the best advice I would give is don't skimp on the due diligence and make sure the lawyers/advisors that you use are experienced in the type of business that you are buying.  My firm did a lot a cable transactions and once we had a white shoe manhattan firm on the other side, who did a lot of M&A stuff, but not in our industry, and they probably cost their client 2-3x as much because everything took them longer since they didn't know it and had to "get up to speed" on things while billing for the learning curve. I'm sure it would be prohibitively expensive if someone hired us to do a software or pharmaceutical deal, for the same reasons. 

 

It's okay to have different people for different things.  Our clients had a boutique tax law firm that represented a lot of cable companies, and they had a different firm for litigation. Just because you use a firm for, say, the real estate portion of the deal, doesn't mean that the tax or IP people in the firm are just as good.  

Super helpful. Thank you!