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ETA Expects You to Be a Great Dealmaker. What If You’re Not?
Updated: 5 days 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 own studio for several years, but lately, business has become more challenging.
The economy may explain some of it. But she also admitted something else: she hates the business side of running her studio.
She loves dancing, teaching, mentoring and developing other dancers.
But finding new students, managing cash flow, figuring out what to post on social media, chasing unpaid invoices and dealing with costs? She finds all of that incredibly painful and boring.
At the end of the day, when she sits down to tackle these tasks, she struggles to focus. Sometimes she just stares at the screen, occasionally needing a glass of wine to get herself into the mood to do the work.
She told me she wished someone could simply bring her the students so she could just focus on teaching and dancing.
After listening to her, I said, "You need a business partner."
"You clearly don't enjoy the business side, but the studio can't become a successful business without it. You need someone who complements you.
Someone who is good at marketing, sales, managing finances and all the other things that go into 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 yourself, especially when half of what needs to be done neither interests you nor plays to your strengths."
She agreed. And she's now looking for that person.
The Front End and Back End of ETA
That conversation got me thinking about the ETA community.
Many searchers are trying to do everything themselves. And in some ways, they're in exactly the same position as my daughter's dance teacher.
For the studio owner, there's the business side: marketing the studio, finding and enrolling students, managing finances and making sure the business is profitable.
Then there's the part she loves: running classes, teaching, developing dancers and making sure her students are happy.
In ETA, there's a similar division.
The front end is buying the business.
It starts with finding that diamond in the rough. The one business, among hundreds of possibilities, that is genuinely worth pursuing.
Then comes the research, financial analysis, modelling and stress testing needed to establish whether it's the right business at the right price, and to give investors and lenders the confidence to fund the acquisition.
There are negotiations, financing arrangements, due diligence and all the work required to get the deal across the line.
The back end is running the business.
Once the acquisition is completed, the work changes. It's about leading people, improving operations, growing the business and ultimately delivering the returns that justified buying it in the first place.
These are two very different sets of skills.
Just as my daughter's dance teacher is excellent at teaching but struggles with the commercial side of her studio, many ETA searchers are capable operators who find the search and acquisition process difficult.
They may have spent years managing teams, growing revenue, improving profitability and running successful operations.
But finding, evaluating, financing and acquiring a business is a different discipline altogether.
And here's the irony:
Unless they succeed at buying a business, they never get the opportunity to prove how good they are at running one.
Many ETA Searchers Never Reach the Part They're 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 them may have been exceptional operators. People who could have built great businesses, created jobs and generated strong returns for investors.
But they never got the chance to prove it.
They didn't fail because they couldn't run a business.
They failed to acquire one.
And those are two very different capabilities.
Zenify's Partnership Model
At Zenify, we believe great operators should have the opportunity to own businesses without first having to become great dealmakers.
That's why we've developed our partnership model.
We bring the dealmaking capability. You bring the operating capability. Together, we acquire a business.
We partner with experienced operators who know how to run and grow businesses but would benefit from having an experienced acquisition team working alongside them.
Zenify takes the lead on the acquisition.
We help define what to look for, find opportunities, approach business owners and identify which businesses are genuinely worth pursuing.
We undertake the financial analysis, modelling and valuation, negotiate the commercial terms and manage the acquisition process through to completion.
For the right operator and opportunity, we can also work to bring together the capital required from investors and debt providers, subject to the appropriate arrangements.
Our operating partner brings something equally important: deep industry knowledge, leadership experience and the capability to run and grow the business after acquisition.
They also invest their own capital alongside our investors, so everyone has a financial stake in making the business successful.
We're selective about who we partner with. We're looking 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.
The principle, however, is simple.
Each partner brings the capability the other needs to make the acquisition and the business successful.
You Don't Have to Be Great at Everything
I've been thinking about my daughter's dance teacher since our conversation.
She doesn't need another world-class dancer.
She needs someone who understands the value of what she does, but is good at the part of the business she finds difficult.
And I think many experienced operators looking to acquire a business need exactly the same thing.
They don't necessarily need another two years learning how to source deals, build acquisition models, negotiate transactions and raise capital.
They need the right people alongside them who already know how to do those things.
Because being a great operator and being a great dealmaker are not the same thing.
And there's no reason one person should have to be both.
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 own and grow a business, but doesn't want to spend the next two years becoming a dealmaker, let's talk.
At Zenify, we selectively partner with operators to find, assess, fund and acquire established businesses.
You focus on what you're good at: running and growing the business. We bring the capability to help you acquire it.
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.
