Understand the state
Some look for flourishing companies to acquire, but SigmaBleyzer seeks the opposite —distressed situations where it can inject value.
Regardless of what you’re looking for, stick to that. Avoid the temptation to be so flexible you try to tackle it all.
“Don’t be the answer to all prayers and then try to do everything at once,” Bleyzer says. “It is more important to focus on what you are actually looking for instead of just opening the door to the flood. The secret to developing good proprietary deal flow is to be very, very focused and know what you’re looking for.”
By setting your sights ahead of time, you make it easier to run opportunities through predetermined filters as they come up. SigmaBleyzer focuses on consumer technology and telecommunications sectors and limits the scope according to the company’s size, condition and potential.
“Our main focus is really on one question: What happened?” Bleyzer says. “There are many reasons why businesses become distressed: People may drive it into the ground, technology, obsolescence, market conditions, lack of available corporate finances, poor structure, poor capitalization.”
Whatever you’re looking for, you have to dig beyond the basics to see how an opportunity lines up to your focus. Financials and executive testimony alone won’t give you the whole story.
“You talk to as many people as possible,” Bleyzer says. “Those people include customers, suppliers, advisers, employees. It needs to be a very broad (approach) that you try to get as many different perspectives as possible, because the CEO or even the key members of the executive team will not be ready to share with you all of their difficulties and the problems that they might have caused.”
In those conversations, start general, then drill down for details.
“You start with the simple question, ‘What has been your experience working in this company or supplying this company or buying from this company?’” he says. “[If] they say, ‘We’re extremely happy,’ you say, ‘Why? What makes you happy? As compared to other businesses you’ve worked for or other businesses you buy from or supply to, how is it better?’
“On the other hand, if they say, ‘It’s been tough,’ then try to dig into that specifically: ‘What has been tough — they did not deliver on time, they overcharged you, they didn’t price it correctly, or once they delivered, you couldn’t really get them on the phone to get any service?’”
That collection of input and opinions should point to the company’s issues. Those will explain the state of the company and help you decide what you can do with it.
“If the answer is that this business is no longer needed, there are some obsolescence issues or they’re in a market that is no longer interested because they’ve been replaced by something else or the competitors are so far ahead of them and doing different things, we stop right there,” Bleyzer says. “We are not interested in those businesses that basically have no future.”
But if similar businesses are thriving, then this company has potential — pending a few changes. You can move to the next step of due diligence.