Mcmurry & Swift, a leading Washington State Business Broker serving Puget Sound and western Washington

Buyer Groups

When a medium sized business changes hands these days you will often find the investor to be a Buyer Group (BG). Individuals have long been active in the market but over the past several years there has been a spurt of growth in the number of Buyer Groups (BGs), to the point that we find them becoming a dominating factor in the mid-market acquisition picture. Who and what are these BGs and why are they attracting so many good businesses into their portfolios?

What Is A Buyer Group (Bg)?

BGs are formed by associated individuals and private investors who pool their reputations and resources to build what amounts to a closed end investment fund of a targeted size. When the fund is in place they start prospecting for companies to buy, usually operating as some form of Limited Liability Company (LLC).

What Are Bgs Looking For?

Based on professional analysis and the experience of the principal investors they direct their search for acquisitions to certain industries. They are looking for "platform" companies, i.e., enterprises with minimum annual sales of $10-15 million that can stand-alone and provide a strong entry into the field. Once so established, they are open to "add-on" acquisitions of smaller companies ($2 + million in sales) which strengthen their position in the same industry.

How Do Bgs Find These Companies?

The BG investors themselves are often former owners and/or CEO's of companies within the targeted industries. Sometimes their contact network and general knowledge will help them spot a candidate for purchase. But their most reliable sources are intermediaries like McMurry & Swift, Inc. who make it their business to constantly probe their home areas for possible sellers. We maintain current files on over 50 BGs and have targeted 16 as having acquisition criteria which, based on our location and other factors, we believe we can best satisfy. At our IBBA industry association convention twice a year, we have an opportunity to talk with any or all of the 50+ BGs in attendance.

How Do Bgs Differ?

  • Some want complete ownership, others are happy with a minority interest;
  • Some limit themselves geographically, others will buy anywhere in the U.S.
  • For some, $20 million in sales is a bare minimum for platform companies. Others will consider candidates in the $5-$10 million annual sales range.
  • Some will consider "turn arounds", others insist on a history of steadily increasing cash flows

What Do Bgs Generally Have In Common?

  • They want companies with relatively stable product life cycles;
  • They generally avoid leading- edge technology, i.e., they want to expand established product lines or services, not spend R & D dollars proving them ready for market;
  • They want stability in existing management to run day-to-day operations while the BG principals closely support them on the Board of Director level to provide:
    • their personal insights as well as expertise from other affiliated companies in the portfolio;
    • workable ideas in structuring further add-on acquisitions and implementing consolidation strategies;
    • access to available funds to increase market share and operating efficiencies.
  • They generally pay substantially all cash for the interest purchased. They are well-qualified to get their own primary and secondary financing to the extent required.

Why Do Sellers Find Bgs Such Attractive Buyers?

Aside from financial strength, the key word is "FLEXIBILITY." Following are described a variety of situations typically handled by BGs. Note how they can tailor the terms of sale to fit the requirements of the seller and other parties involved.

Outright Sale By Owner

This is the most common situation. The owner, for a variety of reasons and after much careful thought, becomes a seller. He now must find a buyer with enough financial strength to make his retirement secure and to provide his employees with deserved continuity in their jobs. BGs meet both needs extremely well. They know that the owner will not sell if security needs are not fully met and they will not buy if they have any doubts about the future success of the company and its employees.

Owner Re-capitalization

A re-capitalization is an ideal alternative for an owner who wishes to sell a portion of his company for liquidity or estate planning purposes, while retaining significant equity ownership to participate in the company's upside. This structure allows the owner to achieve personal liquidity without sacrificing operating control of the company that he has painstakingly grown. He also gains the BG as a financial partner to assist with issues of strategic importance. Just as important, the BG assumes or eliminates all personal guarantees tied to the company.

Family Succession

Often this type of transaction involves backing certain members of family management in buying ownership from the senior generation or from outside shareholders. By working with a BG in a family succession transaction, active family members secure operating control and significant equity ownership, while gaining the BG as a financial partner for growth. In addition, selling shareholders achieve liquidity to meet personal estate planning and net worth diversification objectives. This type of transaction also ensures that the family business stays in the family and maintains its identity within the community.

Industry Consolidation

BGs back managers of their platform companies in acquiring other companies within their industry. Using its financial resources and acquisition expertise, the BG can support managers who seek to make a select strategic acquisition, or who seek to acquire and integrate a number of companies within a fragmented industry.

Management Buyout Of A Private Company

BGs can partner with incumbent managers in the acquisition of the companies which they currently run, but do not own. Sellers receive an all cash price.(The BG does not rely on seller financing). Managers receive a generous equity stake in the conservatively capitalized company while retaining daily operating control. Managers have the BG as a well funded, knowledgeable partner to help them grow the business.

Management Buyout Of A Corporate Division

A BG can sometimes help non-owner managers acquire divisions of parent companies. Corporations selling divisions require that a buyer act quickly and efficiently. As a well funded, experienced partner with a strong track record, the BG adds financial credibility to managers as they pursue their one chance to acquire the division they run.

Management Buy-In

A BG can sometimes help non-owner managers acquire divisions of parent companies. Corporations selling divisions require that a buyer act quickly and efficiently. As a well funded, experienced partner with a strong track record, the BG adds financial credibility to managers as they pursue their one chance to acquire the division they run.

For more information on how we can facilitate the “right” fit or assist you in an “exit strategy” that meets your immediate short and long-term objectives with a Private Equity Group, please contact us at (206) 285-6161 or email mcmurry.swift@att.net

Reasons for buying a business | Starting your own business
Buying an established business | Buying a franchise  | Buyer Groups

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