The essence of entrepreneurship through acquisition – episode 3

Starting out in business doesn’t have to mean creating a company from scratch. Buying a company out is also an option. But how often does this happen? And what are the pros and cons for future CEOs, investors and intermediaries?

Diving headlong into this fascinating subject are Vlerick’s own Professor Miguel Meuleman and international buyout specialist Timothy Bovard. A former professor at INSEAD and Columbia Business School, Timothy was a guest speaker at our very first Mergers, Acquisitions and Buyouts Conference in 2012. Now, ten years later, he offers insights and perspectives on acquisition as a route to entrepreneurship.

In 2015, Timothy founded Search Fund Accelerator, an investment firm building further on the historical search fund model and that focuses on micro-LBOs. It pairs talented potential CEOs with businesses that have significant potential for growth. He coaches them throughout the search, due diligence and acquisition processes and unites them with investors providing the equity for the transaction. Miguel is Professor of Entrepreneurship and Director of the Vlerick Entrepreneurship Academy.

Listen in to this third of four Insight Talks to discover the success factors and pitfalls of buying your own company, both in the deal process as well as in the execution and growth phase. Or go back to episode two, if you missed it.

The essence of entrepreneurship through acquisition – episode 3

In this third of four Insight Talks, Professor Miguel Meuleman interviews international buyout expert Timothy Bovard on the success factors and pitfalls of buying your own company, both in the deal process as well as in the execution and growth phase.

You recently started Search Fund Accelerator in the US. Is that a search fund? And what are you trying to achieve with this initiative?

Timothy Bovard: “It’s complimentary. Not everybody's going to be interested in doing Search Fund Accelerator and there are people who would prefer a search fund accelerator over what is now called a traditional search fund. The idea was to bring people together in a cohort to provide them with a huge amount of coaching, mentoring and guidance through the search acquisition and company management process. It's complementary to existing models, whether it's a search fund model or a self-funded search.”

You have been guiding a lot of buyout entrepreneurs, and you did a couple of buyouts yourself. Based on all the experience you have built in the past, what do you consider to be some success factors, for example in the deal completion process, and what are also pitfalls?

Timothy Bovard: “I think there are two clear factors of success for the acquisition. One is doing very thorough and unbiased due diligence. I think one of the big pitfalls is confirmation bias. It's not seeing things, not recognising things or not even searching for things that could be potentially deadly risks for the business. So doing very thorough due diligence is hugely important.

“I think the other area that you should focus on is the growth potential of the business. What kind of a market is this business in? What is the total addressable market? Is this a business that you can double or is it a business that you can multiple by five or more? I think to be successful with a small business like this and to make it worth your while you need to have a business where you can see a path to growing it, many multiples of its current self.”

Once you have completed the transaction, it's all about adding value to the business and creating value. Again, based on your experience, what are the key success factors in execution and realising the growth potential you have discovered during the due diligence

Timothy Bovard: “First, taking the time to get to know the business and get to know the people in the business. I think there is a period of so-called apprenticeship where the new CEO gets to understand the real inner workings of the business and the market in which it's situated.

“Then I think it's important to focus on the organisation. As I mentioned before, many of these organisations are flat. It's important to have a good CFO, a controller to take care of the financial side of the business. And it’s very important to make sure that there's somebody who can run the operations. What I see in many of these businesses is that the new CEO gets sucked into the day-to-day of the business and they end up being what I call shopkeepers rather than being a full-fledged CEO. They're dealing with matters such as: is this crew at the right place at the right time? Or: do they have these parts in stock? So getting somebody who can handle the day-to-day operations is very important.

“And then the third leg is building sales because growth means having a sales organisation, structure, process, and pricing. Building that three-legged stool is important for success.”

Discover more insights on entrepreneurship through acquisition in episode four of this Insight Talks series.