How Do You Find a Company to Buy When the Owner Is Not Selling?

This page is for the founder of an established company in Miami or South Florida who has decided that buying another company could serve the business and now needs to find one. Whether to buy at all, and what you are buying, is covered in growing by acquisition. What to examine once a candidate is talking to you is covered in buying a company: what to examine before you make an offer. The owner's side of the same first call is in someone wants to buy your company, and it is worth reading before you pick up the phone, because the owner you call may have read it too.

Where do acquisition candidates come from?

For an operating company, a useful place to start is the businesses you already see in your market. You may have watched their work and how they treat customers, which gives you a head start on questions an outside buyer has to research from the beginning. Those observations still need checking before they support a decision. What you know through ordinary business dealings may also be confidential, so ask your attorney before using anything that is not public.

Look in five places. The table sets out what each can give you and what it can cost you.

Owners also signal readiness in ordinary conversation: a founder with no family member taking over, a partner who wants to leave, an owner who talks about stepping back. Treat what you hear as a reason for a respectful approach. An owner's age, apparent fatigue or rumored finances are poor grounds for assuming a willingness to sell, and repeating gossip can damage your standing in the market. When a contact offers to introduce you, agree what they may say about your interest, and ask them to get the owner's permission for an introduction without sharing anything confidential about either company.

Which candidates fit before you contact anyone?

Write your acquisition thesis in one sentence before you look at any candidate. Our guide to growing by acquisition sets out the categories a thesis can name and the readiness test that comes before any search.

Then screen each candidate with what you can learn without asking the owner:

• What the company would add to yours under the thesis, in plain terms.
• Whether its customers overlap with yours, complement them or would be new to you.
• How much of the company appears to run through its owner, from what you see in the market.
• Whether you have the management capacity to run it alongside your own company.
• How your own customers and employees would view the combination.

Public information cannot settle the third question, so record it as something to test once the owner is talking. It matters because it decides what you would be buying. Carlos's line from his banking years applies to buyers as well as sellers: "Your valuation scales only when your absence doesn't threaten the business."

For each candidate, write down the fit that public information supports and the open questions that could rule it out. Deciding in advance what would make you stop keeps a pleasant conversation from carrying you past your own thesis.

Who should make the first approach?

Where you can, make it yourself. An owner is likely to ask who would own the company next, and a letter signed by the founder of the buying company answers that at once, while leaving open what is still to be decided. It also shows you are willing to put your name to the request.

An adviser can make the first contact when you need distance, for example while you are still choosing between candidates or when the owner is a competitor. Ask the adviser to say early that an identified buyer is behind the call. An unnamed caller may be read as an intermediary looking to be hired to sell the company, and an owner who has read the guidance on answering approaches will ask who you represent before saying anything useful.

A senior leader in your company can make the approach only if they have your authority to speak for the company and can answer the owner's questions about funding and intentions. Whoever makes contact, agree beforehand what they may say and what stays with you.

What should you say in the first letter or call?

Keep it short and specific. A first letter might read:

"I lead [your company], which has served [your market] in South Florida since [year]. We have followed [their company]'s work with [something specific and true], and we think the two businesses could be stronger together. I would welcome a private conversation about whether you would consider discussing a possible sale of the company, at whatever pace suits you. Please keep any reply to public information for now. If we both want to explore it, our attorneys can agree confidentiality terms before either of us shares more."

Replace each bracket with a fact you can support.

Prepare for the owner's questions. A careful owner is likely to ask who would make the purchase, who approves it on your side, why you are calling now, how you would pay and what you would do with the company and its people. Have a straight answer to each before the first conversation. Check the funding answer with your lender or finance adviser first, and if financing or approvals are still open, tell the owner. An owner who later learns that the money was less certain than you suggested will doubt everything else you said.

Some things stay out of the first approach:

• A figure. The first approach asks whether the owner wants to talk. Whether and when to discuss value is a question for your advisers once talks are open, and our evaluation guide covers testing whether expectations are close.
• Criticism of the company. Your view of what you would change can wait until the owner wants to hear it.
• Pressure. A deadline or a hint that you have other targets tells the owner you are running a process on them.
• Your own confidential plans. Explain your interest with public facts. Keep the most you would spend with your own advisers, and agree any disclosure of your plans with your attorney.
• Requests for records. Asking for financial statements or customer detail before the owner has agreed to talk tells the owner you are collecting information.

Be honest about who you are and why you are calling. An approach made under another pretext, such as a partnership proposal that hides a purchase, tends to end the conversation once the owner sees the purpose, and it costs you trust in a market where owners talk to each other.

How can you tell whether the owner might sell?

Listen more than you talk. An owner who is weighing the idea often asks about the people: what would happen to the employees, whether customers would notice a change, whether the company's name would survive. Remarks about the next stage of the owner's life, a successor who has not appeared or how the company runs when the owner is away are worth hearing too.

The timing belongs to the owner. Questions show interest and commit the owner to nothing, so you can also ask directly whether a sale is something they would consider, and give them time to take advice before they answer. A clear no deserves a thank-you and nothing more. A "not now" is information: ask whether further contact would be welcome, agree how, and respect the answer.

If the owner does want to talk, agree the agenda for the first meeting together. Use it to establish whether both sides want to explore a sale and who has authority on each side, and keep it to public information until your attorneys agree how anything more will be shared.

What changes when the company is a competitor, customer or supplier?

With a competitor, ask your attorney whether and how to make the approach before you make contact. Discussions between competitors can raise competition-law questions. Your attorney decides what information may be exchanged, for what purpose and with whom, and a confidentiality agreement alone leaves those questions open. Both companies keep competing and making their own decisions while the talks continue. The approach itself also tells a rival that you are interested in its part of the market. Decide in advance what you are willing for the competitor to know if the conversation goes nowhere.

With a customer or a supplier, ask your attorney first whether any existing confidentiality or non-solicitation terms between the two companies limit the approach or the use of what you already know. The working relationship continues whatever the owner decides, and the owner may worry that declining will affect it. Keep the acquisition conversation between owners, separate from the people who manage the account or the orders on each side, and agree with the owner who in each company will know. If the answer is no, make sure the next order, invoice and service call go exactly as they would have.

When should you use an intermediary to find candidates?

An intermediary helps when you want candidates outside the market you know, when you lack the time to search or when you want to stay anonymous at first. A broker or M&A adviser may introduce a company that is being marketed for sale, where other buyers may also be looking, or may search on a buyer's behalf on agreed terms. Ask which role applies to you. If you hire one, have your attorney review the engagement, approve each owner before they are contacted and require the adviser to say that an identified buyer is behind the approach.

Before you work with one, ask whom they represent and who pays them, how they will describe you to owners and what they may share about you. Have your attorney confirm their role and duties before you rely on their advice or share anything confidential. Our guide to business brokers and M&A advisers is written for the seller choosing one, and it sets out the questions a seller asks when appointing an intermediary.

What happens once the owner agrees to talk?

Ask your attorney for a confidentiality agreement that suits both sides, and sign it before the owner shares anything that is not public. Your attorney can also say who inside your own company needs to know and who may see each kind of information. When the owner is a competitor, the person who would run the acquired business may need to be kept away from competitively sensitive material.

From here the work becomes evaluation. The first questions to ask, how to separate the owner's account from evidence and what to settle before you name a price are covered in buying a company: what to examine before you make an offer.

What should a founder do this week?

• Write the thesis. One sentence on what an acquisition would add to the company and why buying beats building it.
• Screen the companies you already know. Test competitors, suppliers, customers and businesses serving your customers against the thesis, using public information only.
• Prepare your answers. Who would buy, who approves it, how you would pay and what you would do with the people, agreed with your lender and attorney.
• Prepare one approach. Confirm who owns the company and a suitable way to reach them, check with your attorney if the owner is a competitor, customer or supplier, then write to ask whether they would consider discussing a sale.

The Leadership Scorecard takes ten minutes and shows which parts of your own company still depend on you, which matters before you take on a second one.