You have worked extremely hard building your business, surviving the stock market crash of 1987, the global financial crisis, managing inventory, customers and staff! Now you have decided to sell your business, your main financial asset, your baby and reap the rewards from all your hard work. Selling your business is a big decision, so you must choose a high quality Business Broking company and a broker who will manage the sales process professionally, and maximise the sale price of your business.
There are 4 types of buyers;
Individual buyers are people who are at a stage in life where they are financially secure and have a desire to buy and manage their own business. Often these people are from a corporate background and wish to create some equity and personal wealth for themselves as opposed for their boss. They are often also buying themselves a job. Individual buyers are buying the current cash flow and are not usually willing to pay for synergies or future upsides in earnings.
Management buyout (MBO) is where a staff member or group of staff buy the company. This could be beneficial if it is a niche business with very few buyers or if there is a staff member who is very capable of owning and managing the business and the funds to purchase. Also if it suits, the ownership transfer could be phased over a longer period. It is difficult to maximise the sales price when selling to staff.
Private equity or financial buyers invest in companies that will give a high return on investment to their investors. This return could be from operating cash flow or divesting assets or from buying the company at a low price and selling high. Often their intention is more about the return on investment as opposed to what is best for the long term good of the business. Often with a financial buyer the seller can cash up, but stay running the business for the new owner.
Strategic buyers could be a competitor, a supplier or a business with a similar supply chain who is looking to grow their business or enter a new market / sector. They are often attracted to the cost savings and synergies they will achieve by the acquisition. They also could be looking at solving a weakness within their own business such as a patent you may hold, an system or some cutting edge technology you have developed. Because a strategic buyer can extract more value from the acquisition than an individual or financial buyer or MBO they can afford to pay a premium to acquire the business if required to secure the deal.
Targeting a strategic buyer has many advantages both for the buyer and the seller and generally ends in a win-win for both parties.
Advantages to the Seller of a Strategic Buyer;
Advantages to the Buyer of a Strategic Acquisition;
Due diligence can be difficult as you are disclosing your secrets to a possible competitor. You must ensure the buyer is genuine. Before you enter due diligence you must ensure the strategic buyer has put a conditional sales and purchase agreement together that is acceptable in regards to price and the conditions are few and tight and they have paid a reasonable size deposit.
The key when targeting a strategic buyer is to work closely with your business broker, do not race to list on their web site or advertise the business for sale. Brainstorm possible strategic buyers, agree on a priority of potential buyers and then give the broker some time to approach potential strategic buyers, arrange meetings with them etc. If you do not manage to attract a strategic buyer, but you feel there will be one out there, list the business at a premium initially – you can always lower the price after a period of time, but it is difficult to increase it once you have gone to market.
Sourced from LINKbusiness.co.nz