Buy or Build Considerations in M&A

Before you start any acquisition, you should always consider whether to buy it or build it yourself. In this article, we will discuss how to determine if you should buy or build with Cameron Weiner, VP of Strategic Development, Head of M&A at Shopko Optical.

You always have the choice to build. It might not be a good idea, but you can always build. You won't always be able to buy. So you have to look at both." - Cameron Weiner

Cameron does not have investment banking experience. What led him into a Head of M&A role was his strong interpersonal and management skills. He believes that connecting with people is more important than any technical skills when putting deals together.

Deal Sourcing

When it comes to deal origination, Cameron sometimes sources deals at events. These conferences bring founders and investors together, which is a great way to meet potential targets and start building relationships with them.

Another way to source deals is through direct outreach. He has had success using an M&A origination tool with a large amount of data regarding companies in specific sectors. He will use the data to find attractive targets and reach decision-makers in the company.

Lastly, Cameron believes that there is value in developing relationships with intermediaries, such as bankers and buy-side or sell-side brokers. His favorite approach is to partner with buy-side brokers, which tend to be less competitive and more scalable. They usually sign a success fee agreement where you pay them a percentage fee upon closing a deal that they sourced.

Cameron loves cultivating relationships with owners but finding them is challenging. He likes to outsource the process and is happy to pay a small fee if it saves time and generates proprietary opportunities.

Buy or Build Considerations

When building, you should consider:

Real Estate - You might need an analytic tool to help you analyze real estate locations and Identify:

• Competitive Density - How far are you from the population? Divide it by the number of competitors in the market.
• Demographics - Who are your potential customers?
• Economic Data - What is the percentage of insured people, what's their median income, and poverty rates?
• Spend Indexes - How much does the population spend on your industry?
• Trade Area - Where are your potential customers going to come from?
• Brand Awareness - You have to be aware of how powerful your brand is compared to the target's brand in that specific market. If you already have other locations there, it will lower your customer acquisition cost.

When buying, you should consider:

• Cultural Fit - Can you integrate the company properly?
• Financials - Will you make money after the acquisition?
• Geographic – Is this a strategic location within the trade area? 
• Retention - Willingness of the owner or leadership to stay long-term, or at least for a transitionary period? If they are not willing to stay, can you replace that gap quickly?

In general, if you already have shops in a particular area, then building would be more logical. You will have a lower customer acquisition cost; you can share staff, suppliers, and an operational framework. There are many advantages with less risk.

However, if you are entering a new location or market, building your own will have significant risks as you have minimum brand awareness and don't know your customers. Acquiring an established entity will typically be better in this scenario.

Approaching Targets

"If you can reduce the number of questions that you need to get to an LOI, that is going to allow you to get more deals." - Cameron Weiner

If you decide to acquire the target company, empathy is one of the most important things you need to succeed. Understand where the owners are coming from, whether or not they are willing to sell their business. Cultivating relationships is extremely valuable.

Cameron takes a very humanistic approach when it comes to approaching his targets. He believes that targets will have different priorities and motivations, and you need to understand what matters to them—listening and treating them like a friend goes a long way.

Also, part of being empathetic is not throwing 300 questions at your target before you get to an LOI. Owners don’t want their business to be distracted during preliminary diligence and will be more amicable when you have a shortlist of questions.