Mergers & Acquisitions: The Usual Suspects – Part 3

By / 11 months ago

Part 3: “Hybrid” buyers.

In the first two installments of this three-part series, we discussed strategic/industry buyers and financial buyers. Let’s talk about a blend of the two, what we refer to internally here at the firm as a Hybrid buyer.

The Hybrid Buyer
The hybrid buyer is an industry buyer backed by a financial buyer/investor, such as a private equity firm. This type of buyer brings together the best attributes of both industry and financial buyer.

Here’s a partial list of example hybrid buyers in LBM, familiar names for all of us: US LBM Holdings, Builders FirstSource, Stock Building Supply, SRS, Gypsum Management Supply, ProBuild & Roofing Supply Group (prior to their transactions), Foundation Building Materials and Beacon Roofing Supply.

Bottom line: You absolutely want a hybrid buyer at the table when you’re looking to sell. As advisors, here’s why we love interest from this buyer type.

Pros of doing a deal with hybrid buyers:
1. You will get a serious look. These businesses have a mandate to be acquisitive. They review more deals, and complete more deals, in your segment than any other type of buyer.

2. It’s nice to talk about who you would “like to buy your business,” but at the end of the day you want someone who will make it to the finish line. Hybrids usually have the least risk to close because:
– Their investors have already bought into the quirks of the industry, likely know who you are, and have a strategic reason to want to acquire you.
– They have the capital (“dry powder”) to make things happen. More so than independent dealers, they have the balance sheet to have less of, or no financing contingency.
– Hybrids are adept at expediting the due diligence process and will usually go as fast as you can. Because they are constantly doing deals, some even have dedicated teams who systematically move through this cumbersome part of the transaction.

3. Can rationalize getting aggressive on valuation due to:
– Synergies, such as back office consolidation, better buying power, etc.;
– Arbitrage opportunities. For example, if they acquire your company at 4.0x – 4.5x EBITDA and know over the long term their business will trade for 6.0x – 8.0x, this arbitrage can help this type of buyer move up in valuation for a coveted asset.
– A strategic need to be in a specific market.

4. These buyers are backed by professional dealmakers, who are sometimes active in the deal-making. These folks are very deliberate, efficient, and don’t have to be educated about buying businesses.

5. Unlike a pure financial buyer, hybrids can entertain small deals and do transact on these often.

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Jason Fraler

Jason Fraler is managing partner of Anchor Peabody, a mergers and acquisitions firm focused exclusively on the LBM industry. He can be reached at 855.891.2469 or