DRIVE-5™ Buying Process
The Roadmap for Acquiring a Business
How can anyone expect to get from Point A to Point B without clear directions and a good roadmap? For buyers, Point A is embarking on a search for a business to buy and Point B is actually buying that business. With this journey in mind, Sigma Mergers & Acquisitions developed a comprehensive roadmap that leads a buyer along the path of acquiring a company – DRIVE-5™.
Discovery, Research, Investigation, Verification and Escrow – the five steps every buyer should follow in order to experience the smoothest acquisition process with the fewest surprises, and in turn the least amount of frustration. Buying a business is hard, but DRIVE-5™ provides the guidance any buyer could benefit from.
DRIVE-5™ is Sigma’s proprietary buying program. We utilize it on each and every transaction regardless of who we represent – whether we represent a buyer who is acquiring a company, or the business owner looking for a buyer is our client, we manage every transaction by following this time-tested and proven process.
No business buying process can start without a buyer first identifying the criteria he or she has for the target business. These criteria can include requirements for purchase price, cash flow, down payment, industry, location and financing options, just to name a handful. Sometimes buyers know exactly what their criteria are before they even begin their search, while others begin to develop their purchase profile as they look at available businesses. We call this initial stage “Discovery” – that period where a buyer is combing through as many acquisition opportunities as possible to find what he or she is or isn’t interested in.
Once a buyer has honed in on specific requirements, he or she is then able to narrow the scope of the search to a more specific group of businesses that fit all or many of those criteria. We transition out of Discovery and into the “Research” stage at this point. These particular businesses that fit a buyer’s search criteria need to be examined more closely. This is the time when a buyer would request more information on several businesses, execute confidentiality agreements and begin the deeper Research process into these companies. Key, high-level topics need to be addressed at this point, such as understanding how a business makes its money, what the owner’s role in the company is, how the business has performed in recent years and certainly why the company is for sale.
Now that a buyer has a solid foundational understanding of these businesses he or she has an interest in, it’s time to move from Research to “Investigation.” At this stage in the buying process a buyer needs to narrow the scope even tighter to a small group of businesses he or she wants to pursue – these are the companies that have shown the most promise in terms of being a good fit for the buyer, as well as passing the Research tests. Buyers need to dig deeper now – this can include visiting the business facility, meeting the owner, asking more detailed financial questions and talking to lenders. This is no longer a cursory look at the company – this is envisioning oneself in the owner’s role and seeing if that feels like a good fit.
A buyer has come to the point in the process now where he or she has seen as much information about a business that can reasonably be expected without some sort of commitment. Investigation is complete and it’s time to negotiate a letter of intent and move to “Verification,” more commonly known as due diligence. The Verification stage is the time when a buyer should have access to any and all information about a company – the objective of due diligence is to verify that everything presented thus far about a company is accurate and to determine if there are any “skeletons” that might prohibit a buyer from making the acquisition. We believe the goal of Verification should be for a buyer to reconcile and validate what he or she believes about a business that created the sincere interest in the first place – the goal of Verification should not be for a buyer to look for reasons not to buy the company, nor should it be for a buyer to look for reasons to convince him or her to buy. Buyers who look for reasons not to buy will find those reasons, while buyers hoping to find something to convince them to buy will never find what they need to get comfortable. Buyers who followed the first three steps or DRIVE-5™ properly will end up acquiring the company in most cases because they understand what the objective Verification truly is.
With Verification complete and the buyer excited about the company, we enter the final stage of the process – “Escrow,” which we define as negotiating and executing all transaction documents, as well as making the final arrangements for funding, preparing for the transition from owner to buyer and closing Escrow to finalize the acquisition. There are literally hundreds of loose ends to tie up prior to closing the deal, but what’s important is not to try and handle everything at once – these tasks need to prioritized into what needs to occur before, at and after closing. Here are examples of all three types: (1) before closing an owner and buyer need to agree if prorated rent will be paid outside of escrow or as part of the settlements; (2) at closing an owner needs to sign over title of vehicles to the buyer; (3) after closing the buyer needs to work with the previous owner to switch over utilities into the buyer’s name. The key to successful Escrow is simply making sure that both the owner and buyer understand what needs to happen before, at and after closing to ensure everyone experiences as smooth a transition as possible.
Interested in Buyer Representation?
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What Buyers Said
“Sigma proved to be an enormous asset is helping us consummate a deal with the sellers that was mutually beneficial to all involved.”
– Marcus Bodet, acquired Resource One, Incorporated
“We were lucky be have Sigma on the other side of the table. Without their creativity and guidance, this transaction would not have closed.”
– Adrienne Hamblin, acquired PerWess Co.
“Sigma’s online NDA system and video presentation made it easy to look at a business from 500 miles away. Before I even came to Dallas I knew I wanted the business.”
– Ken Pierce, acquired L & L Pro Pac