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ETA Expects You to Be a Great Dealmaker. What If You’re Not?
Updated: 2 hours ago
What happens to capable operators who aren't great dealmakers?
A conversation with my daughter's dance teacher over the weekend brought this question home.
A Great Dancer, But Running a Business Is Another Story
My daughter's dance teacher is an accomplished dancer who has won multiple international dance awards.
She has been running her studio for several years, but lately, business has become more challenging. The economy may explain some of it. However, she also admitted that she hates the business side of running the studio.
She loves dancing, teaching, mentoring and developing other dancers.
But when it comes to the other side of the business - finding new students, balancing cash flow, figuring out what to post on social media, chasing unpaid invoices and dealing with cost pressures - she finds it incredibly painful and boring.
Whenever she sits down at the end of the day to do this work, she struggles to focus. She may stare at the screen for a while, sometimes needing a glass of wine to get herself into the mood to do these tasks.
She said she wished someone would bring her 10, 20 or however many students she needed, and she could simply focus on teaching and dancing.
After hearing that, I said, "You need a business partner."
"You clearly don't enjoy the business side, but the studio cannot become a successful business without it. Find someone who complements you - someone who is good at marketing and sales, managing finances and helping with the other things that are part of running a business."
"Even if you have to share ownership 50:50, together you could be far more successful than you are trying to do everything alone, especially when one side of the business neither interests you nor plays to your strengths."
She agreed and is now looking for that person.
The Front End and Back End of ETA
That conversation reminded me of the ETA community.
Many searchers are trying to do everything themselves. In many ways, they are similar to this studio owner.
For the studio owner, the front end involves marketing the studio, finding and enrolling students, managing the finances and ensuring the business is profitable.
The back end involves running the classes, teaching and ensuring the students are happy.
For an ETA searcher, the front end involves finding the diamond in the rough: the one business in a sea of hundreds worth pursuing.
Then comes the research, analysis, modelling and stress testing needed to build conviction that it is the right business, at the right price, and to give investors and lenders the confidence to fund the deal.
The back end begins after the acquisition. It involves leading the team, improving operations, growing the business and ultimately generating the return that justified buying it in the first place.
Just as this studio owner excels at the back end but struggles with the front end, many ETA searchers are in the same position.
They are capable operators who could do an excellent job running a business, but they struggle with the search and acquisition process.
The irony is that unless they succeed at the front end, they never get the opportunity to prove how good they are at the back end.
Many ETA Searchers Never Reach the Part They Are Good At
A typical traditional search fund search takes approximately 18 to 24 months. Yet even after investing that much time, many searchers still do not complete an acquisition.
Stanford data cited by SMEVentures shows that approximately 43% of concluded traditional searches end without an acquisition.
In other words, a substantial proportion never reach the operating phase they entered ETA to pursue.
Some of these searchers may have been exceptional operators. But they never got the chance to prove it.
They didn't necessarily fail because they couldn't run a business. They failed to acquire one.
And those are two very different capabilities.
Zenify's Partnership Model
We believe great operators should have the opportunity to own businesses without first having to become great dealmakers.
That's why we've developed Zenify's partnership model.
We bring the dealmaking capability. You bring the operating capability. Together, we acquire a business.
We selectively partner with experienced operators whose strengths lie in running and growing businesses.
Zenify leads the front end: defining what to look for, finding opportunities, approaching business owners, identifying which businesses are worth pursuing, conducting the analysis and modelling, valuing and negotiating the deal, and managing the transaction through to completion.
For the right operator and the right opportunity, we can also work to bring together the required capital from investors and debt providers, subject to the appropriate arrangements.
The operator brings the industry knowledge and operating capability. They take responsibility for leading and growing the business after completion, and invest their own capital alongside our investors.
This is a selective partnership model. We look for operators who:
Have substantial experience as an operations manager, general manager, CEO or in a similar senior role
Have run the type of business they want to acquire, or one closely related to it
Can invest approximately 5% to 20% of the required equity
Have the judgement and temperament to take responsibility for an established business
The exact partnership, ownership and funding structure depends on the operator, the business and the capital required.
You Don't Have to Be Great at Everything
My daughter's dance teacher doesn't need another world-class dancer.
She needs someone who understands what she does but is strong in the part of the business she finds difficult.
An experienced ETA operator may need the same thing.
You may already have what it takes to run a great business. You just need the right partner to help you buy one.
Looking for an acquisition partner?
If you're an experienced operator who wants to acquire a business but doesn't want to spend the next two years becoming a dealmaker, let's talk.
Zenify partners with selected operators to find, assess, fund and acquire established businesses, allowing them to focus on what they do best: running and growing the business.
About the Author
Celine Nguyen, CFA, is the Founder and Managing Director of Zenify Investments, a Sydney-based buy-side M&A advisory and SME investment firm. With over 20 years of experience across investment management, corporate finance and mergers & acquisitions, Celine brings institutional investment discipline to Australia's SME acquisition market. Through Zenify, she gives buyers the investment firepower to decide if a business deserves their capital, and the deal capability to close the ones that do.
