In this episode of Private Market Insights, we sit down with Steve Ressler, Co-founder and Managing Partner at the Brydon Group, to discuss his unique approach to small business acquisition, especially when it comes to brokered vs proprietary strategies. Steve’s diverse experience is quite impressive and includes working in Homeland Security, launching and exiting a successful social network, as well as serving as CEO of a public safety software company sold to Motorola. He also gained valuable knowledge at Vista Private Equity on how to buy and run great software businesses.
We explored the value of brokered vs proprietary search methods for deal sourcing, drawing on Steve’s background in government and public service. We also touched on the impact emerging technology will have on the small business M&A space.
You can watch the entire conversation below or read our main takeaways here. It’s well worth your time:
Brydon Group: Acquiring Small Businesses with a Mission
The team behind Brydon Group has been active in the SMB M&A space for six years, investing individually before launching a fund a year ago. Their goal is to back mid-career, sector-focused searchers under their umbrella, partnering with entrepreneurs to acquire small businesses and support their transition to the next generation of owners.
Steve believes that there is a common thread between public service and the SMB world – most people in these sectors are driven by a higher-purpose desire or a mission, be it to teach children, improve cities, or lead a small business. He finds the search community particularly appealing due to its mix of private equity executive and startup entrepreneur cultures.
Brokered vs Proprietary Search Strategies
When asked about how his searchers incorporate brokered and proprietary search methods into their processes, Steve explained that he believes brokered strategies work well for small self-funded, and location-restricted searches (deals under 1M EBITDA) and larger, PE-backed searches. For smaller deals (under $1M EBITDA), brokered search works well because there are not many institutional buyers competing for businesses of that size. The regional brokers are looking for individual, self-funded buyers, and the SBA 7A program provides an attractive financing option for acquisitions up to $5M.
However, brokered search can be challenging for traditional searches looking for $2 million EBITDA businesses, as private equity is competing at that size and out classes most self-funded searchers due to PE’s abundance of committed capital. Steve recommends traditional searchers to focus on fewer deals and show credibility on areas that the searcher has spent time with, establishing and building relationships with local brokers.
Proprietary search methods are another popular strategy for deal sourcing. This method complements brokered strategies and functions similarly to a B2B sales funnel, but to stand out from the competition, searchers need to adjust their tactics and sources. Just like in sales, success depends on where focus is placed, and on knowing when to push or back off, since time is limited and the ultimate goal is to find opportunities that other brokers might have missed.
Leaning Into Competitive Advantages
When searching for a business to acquire, there is no one-size-fits-all approach. However, there are certain strategies that can improve the chances of success and Steve’s recommendation is to lean into one’s competitive advantages. A crucial element in this approach is understanding brokers and sellers, as this allows a more personalized outreach, tailored to their preferences. By doing so, searchers can improve the chances of getting a response and ultimately, closing a successful deal. Searchers with location or industry expertise should leverage that to their advantage, as these factors can increase their credibility and make them stand out to potential sellers.
In addition to utilizing their strengths, searchers should consider building connections as a key component of success formula. The power of storytelling and finding a unique connection or story that resonates with brokers and sellers can improve their chances of closing a successful deal. Creativity in outreach methods can also help build rapport. Showing up in person or offering personalized gifts can be a memorable way to make a lasting impression.
Current Market Trends and Challenges
One trend to note is the growing divide between PE-backed roll ups and self-funded businesses. In personnel management-heavy industries, for example, self-funding might be a more suitable option. Another trend to keep in mind is the increasing competition in the lower middle market. Larger cap PE firms are moving downmarket, making it more difficult to find the right opportunities.
Technology is also having a major impact on the search process. Company identification, contact identification, and outreach are becoming easier with the use of emerging technologies, such as AI. However, this also means that there is more competition in the market, making it important for searchers to be creative and find unique ways to stand out.
In addition, brokers and bankers will need to adapt as technology continues to advance. As the number of buyers in the market increases, it will be more difficult to qualify them in the same way. Brokers will need to find ways to spend less time qualifying buyers and more time working with sellers to close deals.
The Importance of Networking and Leveraging Technology
Steve acknowledged that technology has made it easier to identify and contact companies and individuals for outreach. He predicts that the market for paid large databases will go down in price, making contact identification even more accessible. However, he also noted that there is a challenge in standing out among the noise of outreach. To overcome this challenge, he believes that AI and models will make it easier to build customized messaging, and that building relationships will still be critical for opening doors and creating opportunities. He also emphasized that having a guide, such as a banker or broker, is essential to streamline the process and make it less onerous for both parties.
Steve recommended that searchers should focus on maximizing their time and using available tools to improve their strategies. At the same time, he emphasized the importance of personal connections in getting deals, indicating that relationships are still critical, even with modern platforms. Therefore, searchers should aim to strike a balance between using technology and building personal connections.
In Conclusion
During this engaging conversation, Steve Ressler provided valuable insights into small business acquisition strategies and the vital role of technology in the market. He highlights the significance of capitalizing on one’s strengths, nurturing relationships, and maintaining flexibility in a constantly changing landscape. By skillfully employing brokered vs proprietary search methods, and leveraging competitive advantages, small business acquisition professionals can significantly enhance their chances of success in a competitive market.