Sell-side: How to Find a Unicorn Bidder for Your Next Deal

Sell-side: How to Find a Unicorn Bidder for Your Next Deal

In a recent Merger Market report, the beginning of the year was described as a buyer’s market, and a reference was made to “unicorns”. When most people use this term, they’re referring either to a mythical mono-horned horse, or to private companies with valuations of at least $1 billion. For an entrepreneur looking to sell their company, it has an entirely different meaning: the ideal buyer, one who checks off all the boxes, the proverbial perfect fit. Yet, what makes a unicorn? The most obvious answer is someone willing to pay the highest price for your business. There’s usually more to it than that, depending on your goals, it may not be the best idea to conflate the highest bidder with the best bidder.

“Many people assume that the best way to get value is to run a broad auction. But some buyers want to engage one-on-one.”

– Jim Kofman, Cormark Securities

Retaining control after a sale is finalized

One important thing to keep in mind is how much control you would like to retain after the sale is finalized. Founders staying on isn’t uncommon, and often a company is acquired for what’s working – changing the recipe for success after the fact is probably not the best idea. The perfect buyer may also have the ability to shield your company from external pressures – if your company is publicly traded, being taken over by a larger company or taken private can be a blessing. Being able to focus on long-term goals instead of obsessing over quarterly numbers is a form of control retention that can be invaluable.

Cultural fit matters when entertaining a unicorn bidder

Most mergers are more than just a purchase of assets – people get transferred along with it. Not only is this important to you as a founder, but your employees are stakeholders in the transaction, if not necessarily shareholders. A unicorn buyer will provide a cultural fit that helps ensure the teams mesh well, reducing turnover and increasing synergies. This not only helps employees keep their jobs, but improves your reputation as a savvy dealmaker, someone who can put complex companies together successfully, which is extraordinarily helpful if you start another company and want to sell it down the line.

Of course, you can’t underestimate prestige. Many founders end up as serial entrepreneurs and being known for selling a company to a market leader lends you a certain amount of caché. This can be helpful by making future sales of companies easier, as the market now knows you and follows your actions and developments. Obviously, this is not the most important factor, but it could tilt the favor for one buyer over another.

This woodcut is an illustration from the book The history of four-footed beasts and serpents by Edward Topsell. (http://digital.lib.uh.edu/u?/p15195coll18,33)
This woodcut is an illustration from the book The history of four-footed beasts and serpents by Edward Topsell. (http://digital.lib.uh.edu/u?/p15195coll18,33)

How to find a unicorn bidder

So how does one find a unicorn? As mentioned in the Q2 Merger Market report, informal talks such as “fireside chats” or “gold card meetings” can be very helpful. These are informal conversations where you speak with potential buyers and “talk shop” in a more casual setting than the boardroom, and can be arranged through professional networks, contacts met at industry conventions, friends, family, former classmates, colleagues, anyone and everyone who might know someone in your industry. These pre-emptive conversations help sow the seeds of future transactions while also allowing each person involved to get an idea of who the other is and what they’re looking for. Be relaxed, but always be prepared for things take a more serious bent.

“Having pre-emptive conversations with potential buyers, also known as ‘fireside chats’ or ‘gold card meetings,’ may be a catalyst for identifying a unicorn bidder.”

– Michael Teplitsky, Wynnchurch Capital

The key, of course, is not just meeting someone, it’s also research. Find out who is looking to acquire a company in your line of business, why they’re looking to do so, what is their reputation for such transactions, and so on. Once you’ve found who you consider to be the perfect buyer, your next task is, as with any good sale, making it as easy as possible for them to buy. One good thing to do would be to create a model of your business for them to see. This doesn’t have to be the world’s most detailed model – nobody’s expecting you to be an investment banker. But something to act as a launchpad for their own model, to get a better idea of what your business is and its key factors and risks is a great way to take the initiative in these situations.

Know what buyers are looking for to attract a unicorn bidder

It goes without saying that you should know your business’s numbers inside and out, but you should also familiarize yourself with their business, so you can highlight where synergies can be found. For corporate buyers, you should focus on potential cross-promotion of products and services, areas where your business complements theirs. For private equity buyers, the focus tends to be on where efficiencies can be driven. This can range from sensitivity to interest rates to management expertise and everything in between. Clearly, there will be some overlap for the two primary buyer profiles, but the main point is that you want to focus on areas where they can derive value from your company. You have to sell them on your company before you sell them your company.

Unicorn buyers are given that name because they can seem nearly as mythical as their equestrian namesakes. However, with the right preparation tactics, a good network, and a bit of luck, they can be found. Happy hunting!