Your own company: What organization hasn't at least entertained thoughts of a restructuring that would involve outside participation? Many haven't only considered it, but carried it out, and the pace of this trend is quickening. For countless organizations, it's a way of life. Therefore, while the owners of your company may not have put your division on the block, they're quite likely to be willing to hear your proposal. (Your only risk is that, if your offer is rejected, your future with the company may be in doubt. If that's not an issue, you have nothing to lose here.) Mancuso says some of the best deals he's seen came from this category.
Business brokers: This is an avenue not to be ignored, but which, at lower levels, will also be a source of stale leads and lackluster opportunities. The reason is that for deals under $1 million, sellers have likely tried other alternatives before turning it over to a broker. Therefore, heed Mancuso's advice on how to maximize your exposure to deals that will be good for you: Meet with brokers early in your opportunity search, let them know your criteria and level of commitment to the process, then keep in touch so you'll be alert to good deals that emerge via this route. At higher levels, for deals of up to $20 million, you'll work with an intermediate group of brokers whom you'll likely meet through your banker, lawyer or accountant. Investment bankers enter the picture at about $20 million and up.
Mancuso says significant caution is necessary in dealing with business brokers, especially in deals under $1 million. "Beware of those that want to charge you an up-front fee to review your financials or to list you with their companies as a buyer," he warns. "Check them out thoroughly," through former buyers and sellers, real estate brokers, bankers and the Better Business Bureau. And make sure other professionals represent you in actual negotiations, since the broker is almost always working for the seller. Remember, though, that before you begin talking turkey, brokers can be of significant help in answering questions that would take your time and money to undertake yourself.
Printers: Who's better informed about what's going on in the business community than the people who print stationery, business cards, marketing materials and such, for virtually every business in town? Printers know who's hot and who's not. Mancuso suggests getting to know them, since they can be a great source of leads.
Newspaper ads: This can be a viable vehicle for the extremely specialized business, even though most listings will be for opportunities that have already been passed over by others. Read them for the rare chance of a fit within your niche.
Newspaper back issues: Look for articles in recent months about your industry or target area. Divestitures often follow purchases, and "divestitures can be some of the sweetest deals around," says Mancuso. "Management is so glad to get rid of a headache that it's willing to take back some of the financing at favorable terms," he notes. "In addition, many localities are quick to grant loans, tax abatements, free land in industrial parks and other incentives to retain businesses."
Bankers: Though their actual work takes place toward the end of the deal rather than at the beginning, bankers can often point you to opportunities based on their knowledge of what's going on and who might be thinking about selling. Mancuso cautions, however, that "bankers will tell you about profitable businesses for sale and ones facing foreclosure without saying which is which. You have to learn that yourself."
Lawyers: Ask attorneys you know which lawyers in town do the most business and corporate law, and then get in touch with them.
Accountants: They are another excellent source that should be contacted early and often during your search.
Insurance agents: Again, they may have an inside track on when businesses are for sale.
Trade associations: Every industry has a trade group (usually several), with either paid staff or volunteer directors whose responsibilities include knowing what's happening among member firms. Consult the Encyclopedia of Associations (Gale Research) at your library for contact information on associations in your field. Then, attend their conferences or local/state chapter meetings, subscribe to their publications, and you'll soon be hearing about opportunities.
Buyer's brokers: While most business brokers represent sellers, you might retain someone to act on your behalf. Pay them by the hour, by the number of qualified deals presented, or for discounts secured through the process-but don't pay a percentage of the deal, since the broker would then be motivated to recommend a higher price. Look under "business brokers" in the Yellow Pages.
Small Business Administration liquidation officers: Many businesses on the SBA's bad loan list are for sale. Ask discreetly at your local SB A office ("Do you have any clients currently seeking buyers?"). Find out who your local liquidation officer is (call the SBA at 202-205-6600 or 800-827-5722). Then visit in person.
Bankruptcies: Taking that route a step further, since there are plenty of opportunities among businesses that have failed, consider learning about businesses filing for Chapter 11 protection from creditors, or otherwise engaged in bankruptcy proceedings. A key resource here is The National Bankruptcy Reporter (Andrews Publications, Westtown, PA), which, because of its expense ($900 for six months), you might want to look for at a local law library or bankruptcy attorney's office. Also ask local bankruptcy judges and trustees-or even consider seeking a position as a bankruptcy trustee to help turn a company around or liquidate it.
"Several famous venture capitalists started this way," Mancuso notes, since assets of troubled companies can often be purchased at bargain prices, free of creditors, from owners trying to raise cash to get out of debt.
Look also for a local credit reporting agency, which will give you leads based on local bankruptcies or law-suits. Your chamber of commerce or your attorney will know where to get these reports.
Corporate partners: More and more, large companies are cutting overhead by outsourcing parts of their business, or licensing lines of business to entrepreneurs. Examine corporations in your industry or area for clues on what operations they might be willing to hand off.
Your own ads: Cast an even wider net by advertising your willingness to invest in the right enterprise. With a tone of professionalism, describe the kind of opportunities you'd consider and run it in the classifieds under "capital to invest" or "business wanted."
Knocking on doors: Let your interest in a particular kind of company teach you more about it. If it's a retail operation, become a customer to measure the service you receive at different operations. Notice everything about each one. Then, when it's time to approach the owners, consider Mancuso's straightforward, general advice about how to make a cold call in the world of business buying:
"Be businesslike and courteous when talking to owners. Explain that you're looking to acquire a business and ask if he or she knows of any for sale. Owners probably won't mention their own businesses unless they're anxious to sell, but they'll talk about others to determine whether you know the field or are seeking inside information. Once they trust you, there'll be plenty of time to discover if their businesses are for sale."
