Acquiring an off-market company is a strategy often favored by investors or executives looking to grow through external expansion. But what exactly is meant by “off-market,” and what are the advantages and disadvantages of this type of transaction?
What is an Off-Market Company ?
An off-market company is a business that is sold without going through an official intermediary or investment bank. Unlike an intermediated transaction, where the seller is assisted byan investment banker to structure the process, identify buyers, and secure valuation, an off-market purchase is done directly between the seller and the buyer.
The reasons a seller may choose this approach are multiple:
- Avoiding the cost of investment banking fees
- Favoring a direct relationship with a known buyer
- Responding to a proactive approach from an interested buyer without a formal sale project
Intermediated Deal vs. Off-Market: What BuyersShould Know
For a buyer, receiving an intermediated deal often means working with a company seriously considering a sale, structured and assisted by a professional. The advantages include:
- Clear and structured process with planning, key dates, and prepared financial documents
- Easier access to important information (structured data room)
However, the disadvantages may include :
- Competition with other buyers
- Pressure on valuation and timing of the offer
- Less direct relationship with the seller
Conversely, an off-market purchase allows thebuyer to :
- Have a direct relationship with the seller
- Benefit from more flexible and adaptable timing
- Negotiate without the influence of an advisor defending the seller’s interests
Proactive and Passive Approaches to IdentifyTargets
For off-market acquisitions, there are two main strategies for the buyer:
- Passive or opportunistic approach: receiving deals through their network, investment banks, lawyers, accountants, or professional associations. This allows quick access to companies already for sale, but these deals often correspond to sectors in which the buyer is already known.
- Proactive approach: identifying and contacting companies directly that match the external growth strategy, to diversify the portfolio, acquire new technology,or create a new service. The main disadvantage is the risk of contacting companies that are not highly motivated, which can slow the proces
This approach allows knowing which companies are potentially for sale without having to disclose one’s identity first.
The Value of Working with an Investment Bank inAcquisition
A buy-side investment bank, specialized inacquisitions, can be a valuable partner :
- Saving time through pre-selection and enrichment of information on targets
- Anonymous approach to identify companies open to sale without revealing one’s identity. This can be especially effective for buyers seeking specific companies, suppliers, or strategic partners, without affecting relationships if the company is not for sale.
- Access to market statistics and ratios, enabling analysis of companies and anticipating outcomes
Conclusion
Off-market acquisition offers a flexible andstrategic framework for buyers who want to :
- Develop their business in specific segments
- Create direct relationships with the seller
- Optimize timing and negotiation
In general, off-market acquisition is always an advantage.
The choice between a passive approach of receiving deals or a proactive approach with identification of new targets depends on:
- The number of deals received
- The alignment of received deals with the development strategy
- The importance given to external growth in the company’s development
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