Identifying Prospective Purchasers

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When putting a business up for sale most business owners what to know how much their business is worth. Although getting a good price for your business is important, the highest bidder may not always be the best purchaser. So who is the “right buyer” for your business and how do you identify them?

There are several different types of buyers:

  • Strategic
  • Private equity
  • Individual investor

In order to find the right buyer you need to understand what your objectives are when selling your business.  Some of things you need to consider are:

  • When do you want to exit? Are you prepared to stay on in a management role or do you want to retire straight away?
  • Your business is your child that you’ve watch grow over many years. How important is it to you that your legacy continues to grow?
  • How important are your employees?
  • None of the above matters. Only price matters.

 

Strategic Buyers will be existing businesses within a similar industry looking to grow by acquisition.
These types of buyers will seek to benefit from the synergies of combining the two operations. One of those synergies will the elimination of duplicate costs and one of the quickest ways of doing that is by reducing staff. Your services may not be required beyond the transition period and your long serving employees may soon be seeking employment elsewhere. A strategic buyer may also not be interested in growing your legacy. After all, they’re busy growing their own brand. However, because of the synergies of an acquisition, a strategic buyer may offer the best price.  Therefore if a strategic buyer is interested in acquiring your business it is important to understand how the businesses will be integrated and whether your future visions for the business are aligned.

Private Equity buyers are investment companies that acquire businesses for cash flow.
They typically seek mature companies with strong cash flow and good management with whom they can partner with. In return they bring to the table operational and strategic skills that allow them to grow the business and eventually sell for a much higher price. Private Equity groups will likely want to tie you down to the business for several years. If this is an option you would consider, then a deal could be structured to allow to you benefit from the growth of the business.

Individual Investors more often than not are looking for a career change or are looking to make their first business acquisition.
They may or may not have the necessary skill set to operate your business. However, they may be more sensitive to your goals and objectives of selling your business.

Understanding the motives of a buyer is key to maximizing value. Put yourself in the shoes of a potential buyer and ask yourself would you buy your own business and why.    

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