Know Thy Buyer!

Every business owner needs an exit strategy. That may be a succession plan involving family or employees, a merger and acquisition scenario, or of course the business could just close.

The process of prepping your business for sale requires a bit of patience and teaming up with the right people to help you along the way. One part of that learning curve is understanding the different types of buyers – as each have their pros and cons. Your decision on which way to go will depend on what YOU want as an outcome personally and for your company.

The Strategic Buyer:

Often strategic buyers are entrepreneurs within the same industry looking to expand their company. They may be looking to expand market share in your territory or add an additional product line they don’t currently have. Because they are in expansion mode, they typically are well capitalized and often bring top dollar to the negotiation table. They have the resources to take your company to the next level.

It’s not all positive. A strategic buyer will typically retain their brand identity and upper level management staff. So, if you have a family owned business with strong roots in the community, chances are the company name will change and often some staff will be let go. Often a tough decision for business owners to make.

The Synergistic Buyer:

Much like the strategic buyer, the synergistic buyer wants your expertise. They may or may not be in the same industry and are looking to acquire you because of the synergistic opportunities available to them. Perhaps a health care organization buys an IT firm as it is more cost and time effective to purchase versus building out the technology themselves. As with strategic buyers, synergistic buyers are typically well capitalized and are looking for long-term growth.

The cons? As with above, the company branding is typically owned by the acquiring company therefor a loss of identity for the company being purchased. Staffing will depend on the deal, as often these deals are between complimentary versus like companies, senior management, R&D, etc. will probably retain some job security.

The Financial Buyer:

These buyers are typically a group of investors interested in purchasing, investing in, and reselling highly profitable businesses. Referred to as Private Equity Groups – PEGS. The main focus here is ROI and they have a clear exit strategy before the purchase conversations ensue. They are well capitalized, and are looking for less than 10 years invested.

What makes financial buyers attractive to owners has to do with their team – as there is often little to no turnover. These buyers are NOT looking to work in your company and deal with the day-to-day operations. But the news of a financial buyer often creates some unrest with cultures due to the unknown in the next 5-10 years and there is a lot of pressure put on the teams for profitability.

Individual Buyers:

Finally, we have the individual buyer. These entrepreneurs are looking to buy a business and work in it. They may or may not have industry experience, but often have a strong business background with roots in Corporate America. This type of buyer will be acutely tuned into culture, geography, and attractive financing deals. They won’t be looking to change much about the company initially and will rely on current employees to help them get acclimated.

If done correctly, the individual buyer is a great solution for a seller who is fiercely protective of his/her employees and the future of what the company looks like. Options for the current owner to stay on and work with the new owners through a transitional period helps the team feel at ease and therefor helps employee retention.

Each of these scenarios present pros and cons for the seller, determining which path to go down depends on the outcome you as the business owner are looking to achieve! We encourage all owners to start thinking about the selling process 2-5 years before they think they want to exit so they can make sound decisions and get the best outcome – including the right buyer!