How to buy a business that’s not for sale

If you’re looking to buy a business, and have the cash at hand to see out the current crisis, then now is perhaps a better time than ever. COVID-19 has left companies of all sizes and across most sectors in a vulnerable position and many will be open to an acquisition.

But, if you’re looking to buy a business, you won’t necessarily only have to target companies that are in severe distress in desperate need of a buyer. Due to the widespread impact of COVID-19, there are bound to be many solid businesses, that were perfectly viable prior to the pandemic and could be again in future, that are struggling in some way.

Such businesses may not be actively working towards a sale and some may not even have considered it, but if they receive the right offer from someone willing to put the cash in for the long-term then you might find that they are open to an acquisition.

Here are our three tips for buying a business that’s not for sale.

Identify your targets

A generic bit of due diligence, even if you’re looking to buy a company that is for sale, but a vital one nonetheless. Consider the kind of profile of a business you want to buy and that you feel you could make a successful acquisition of.

Remember, even if the business isn’t necessarily in dire straits, we are living in unprecedented times and, even if you think you have the money to survive the current crisis, the full economic effects of coronavirus are still to be seen.

Make sure you find potential acquisitions that would be right for you, that your targets are the kind of size you can manage, that they’re in a sector you feel confident of success in and, most importantly, that you have a solid plan for taking a business forward. This last one in particular will help you when it comes to attempting to buy a company.

Not taking the time to identify the right target won’t necessarily mean you’re unsuccessful in acquiring a company, but it may mean that you end up buying the wrong company, which is far worse.

Produce a valuation

Once you’ve found the company that you want to buy, it’s time to come up with a solid valuation. This is vitally important because, if your valuation is off, then your offer, delivered out of the blue, is either going to be met with disdainful refusal or total silence.

Firstly, take into account the facts and figures of the company. Cashflow, turnover, profits, losses, creditors, assets. These will all help you to come up with a decent picture of the value of the company. You can also consider factors such as how the company is performing in comparison to competitors or industry averages.

Secondly, it will be just as important to consider variables that might guide the business owner’s personal valuation of their company. After all, many businesses are not going to be valued purely based on cold facts and figures.

If the company is a family firm, the owner is likely to have an emotional connection that might make them less objective in their valuation. Or, if the company had previously experience, or been on the right path for, success, then the owner is unlikely to be impressed by an offer that only reflects the difficult times the business is experiencing now.

Again, making a decent opening offer when pitching to buy a company is the only way you’re not going to be met with outright refusal. This doesn’t mean “making an offer they can’t refuse” and going exorbitantly high, just being respectful and realistic.

Make your pitch

If you’re making an approach to buy a business that’s not for sale, then it’s likely you’re going to be emailing or calling someone out of the blue who you’ve never spoken to before. If you’re going to make a success of this tricky situation, you’ll need a pitch that is compelling and convincing.

Firstly, as in the previous point, be respectful and polite. Tell the owner how much you admire their company and they job they’ve done with it, before heading into the issue of whether they’d consider a sale. At this point, the previous research you’ve done will help you make your case.

Show a knowledge of their finances and the likely issues they’re facing or that they could potentially face in coming months. Discuss how, with your funding, the company can navigate the current crisis and come out primed for success. Then, set out your comprehensive plan for how you could take the business forward.

Success in this step will not necessarily be getting an instant yes, just getting your foot in the door and beginning a meaningful negotiation process will mean that you’re on the way to a potentially successful acquisition.

Buying a business that’s not for sale may sound like a non-starter, or just luck of the draw, but, if you do your research and make your case persuasively, you might be surprised by how many businesses could be open to an acquisition, especially in uncertain times like these.