Often Business owners dream of the large multi million dollar company buying up their little business for a gazillion dollars. Some are more realistic however, and simply think their competition will be the best buyers, and would buy them out in a heart beat. In either case, most times, it’s a stretch.
The question is real and legitimate however. Who should you sell your business to?
Since this is something we address each day and with every business valuation we do here at Pacific Business Brokers, I am delighted to share some rationale and logical thought with you, as it relates to identifying the best, and most likely acquisition target for your business. Though the question is simple, as in most cases, the answer is complex, and with no guarantee. Here are some guidelines, however, that may assist your thinking.
Types of Buyers
Buyers can either be external of internal. Learn more about each type of buyer below.
External buyers are third party at arms length buyers and these will likely fit into one of the following categories:
- Financial –Could be a high net worth individual or a financial or private equity group. Here the primary focus is on the return on their investment and assessment of fiscal or financial risk.
- Strategic –This could be an entity or group or JV including a PEG that is looking to a strategic purchase in order to possibly remove competition, expand its own market, or product or service lines, or simply get into your industry and bouncing off an existing platform may be the easiest and less expensive route.
- Synergistic –A synergistic buyer could again be a PEG or an industry buyer looking to capitalize on synergies by possibly consolidating departments, using the same infrastructure etc.
- Industry –An industry buyer as noted above could be either a strategic or synergistic and sees financial leverage advantages in such an acquisition.
- Main street –Typically this is a buyer that does not fit in any of the previously noted groups. So a non strategic or synergistic and in most cases non financial.
The second group of buyers comes from the group we refer to as “internal.” Internal buyers could be any of the following:
- A family member;
- An Employee; or
- A manager.
So when considering whom to sell to, one needs to assess which group and or category will have the greatest pool, and or greatest chances to close the deal and see and bear the highest value.
All too often I hear sellers and brokers talk about industry buyers that pay the highest value. My personal experience has not been so – in fact, often pure industry buyers see a lower value in a competing business unless they specifically seek strategic or synergistic targets.
Additionally, when considering selling to a family member, one must consider the many other potential implications and challenges relating to that.
Similarly, selling to employees or management have their risk – especially that of confidentiality and more.
I recommend looking through our Video Blog series for video blogs that specifically discuss employee and management buy outs as well as selling to family members. Once the target group has been identified, the next task is find where the targets are geographically and how to expose the opportunity to them in a confidential manner.