Brokers vs proprietary search in the UK
TL;DR: It's hard to avoid brokers in the UK market.
Proprietary search
It is understood that the best deals come from proprietary search. We'd all love to find that business with a retiring owner, great financials and no succession plan who is just waiting for a searcher to come along and cut a deal at a favourable price.
However, identifying these companies takes a lot of time and a LOT of effort. Here's my approach:
Identify an industry sector to target
This could be through hearing about similar deals, reviewing broker listings and looking for adjacent industries, or testing a particular industry theses
Search public records for example companies
UK Companies House Records (CHR) are freely available, searchable (via their API) and contain public ownership information and financial.
BUT, searching CHR relies on SIC codes which are self-declared by companies and generally wrong, ambiguous or simply "Other..."
So, I do use CHR search but guardedly.
The other approach is to reverse engineer the search by obtaining a list of companies via Google search or trade directories and entering these into CHR. This often requires a lot of research to figure out the companies' registration number (and often, that of the TopCo).
Increasingly, I am having more success using paid databases.
While these are scraping the same CHR information, they present it in a way that is more searchable.
Several now have their own industry segmentation that, while subjective, is an improvement over SIC codes. Of course, AI plays a part here.
I like to enhance the search by looking for companies where the majority shareholders are at retirement age. A quick check on CHR reveals whether the next generation of the family are on the Board and likely successors!
Now the hard work starts - making contact with the owners to determine their willingness to sell (a subject I will cover elsewhere). Raising search capital will fund a small team to run this in parallel, reducing the search duration.
There is one caveat to this approach - if an owner is interested in discussing a transaction they will probably want to take professional advice (and they really should). Sometimes this involves them hiring someone to shop the company around, which takes us to the next section - brokers.
Brokered search
Finding companies through brokers should bring two key advantages: the owners are motivated to sell, and they have some reasonable expectation around enterprise value and deal structure (i.e. there will generally be some element of seller note/deferred payment).
Therefore, rather than contacting tens of thousands of individual companies, I can spend time contacting hundreds of brokers (my live database has 150+ screened and relevant brokers, corporate finance advisers and accountants).
Of course, the downside is that the deal will have been marketed to many other acquirers simultaneously (and the best deals may even be snapped up before mass-marketing). This competition means that I, as a searcher, need to differentiate myself vs. others - based on filling a management gap, maintaining the team and key customers or simply being a kindred spirit. I can't compete on price with Private Equity so my approach is to explore how I can go where they are less interested. I'm not buying a concourse Ferrari, I'm buying a solid Maserati runner and polishing it up.
Broker quality varies, from a couple of large players who are broad but low-quality, right down to regional accountants who care about their client and really want to understand the fit with the potential acquirer.
Getting dealflow from brokers requires persistence so I contact them monthly to keep front of mind and make sure I follow up their opportunities between calls.
Given most companies in the UK hire a broker, at some level, to support the sale process, they can't be ignored.