Three ways to select the right buyer for your business

 Register here for our upcoming webinar 'The Essential Guide; How to sell your business' on the 11th and 21st October



Making the decision to sell your business and knowing that it can be sold is a liberating feeling.  However, before you can relax, you need to consider who you want to sell your business to, which kinds of companies would value your business and how you would go about identifying, qualifying and securing any serious contenders.  This can result in a significant drain on your time and resources and can be highly disruptive of your main task of ensuring your business continues to generate revenue and profit. Of course, you need to maximise the return for the sweat equity you have built up in the business over many years but you also want a buyer  that is qualified and may take your business in a new and exciting direction.  There are three significant things to consider when selecting the right buyer for your business:

Who is qualified?
While it’s true that literally anyone could be a potential buyer, you’re probably going to want to sell to somebody who you can trust to steer the business towards prosperity.  Loyal and long-term employees will know your business just as well as you do and, having been part of it for a long time, will have grown with it and lived and absorbed its philosophy, just as you have.
Despite popular opinion to the contrary, the best buyers are unlikely to be competitors but rather, companies that have complementary technologies, a similar customer-base and afford the best cultural fit for your business.  Very often, the best buyers are internationally focused and looking to expand their footprint in your market and sector. You need to ensure you appeal to a broad, international pool of potential buyers, otherwise you may be leaving money on the table by limiting your choice of suitors. Highlighting the unique aspects of your business and demonstrating that they will provide a positive step change to the right buyer is crucial to achieving a successful and profitable exit.

Are They A Genuine Buyer?
A buyer is going to want to know everything about your business: history of profitability, loans, customer base, opportunity for growth, whether or not that fish tank in the lobby is part of the deal.  However, it is important that you also adopt the same approach towards them.  If another company is buying your business, make sure you have compatible philosophies and goals and keep an eye out for factors such as employee loyalty and a clean, ethical background.  It’s also essential to know and understand a buyers acquisition history where possible. You also need to understand their finances; the last thing you want is to end up signing your business over to somebody who isn’t financially qualified.

You may be feeling relaxed and confident in the value of and likelihood of the sale of your company because you are regularly being approached to sell it. Unfortunately, this does not mean your company is highly valuable or in high demand. Having companies approach you, enquiring if you are interested in selling your business actually means very little and it could, in fact, be detrimental to engage with some of them.  Some organisations in our sector are approached 3 times every week with such enquiries.  In reality, such approaches mean very little; just because a company approaches you, it does not mean that they are seriously looking to acquire.

Financial vs. Strategic buyers?
Buyers generally fall into two categories: financial and strategic.  Financial buyers are interested in the cold, hard statistics: how much money does your business make?  Their sole concern is making the most profit from your business with the least work possible and they tend to be more interested in companies that are self-sufficient.  Strategic buyers, on the other hand, can be considered more “hands on” – They’ll be interested in taking the reins of your business and putting their own stamp on it; they are likely to offer you more money, based on potential for improvement rather than solid profit.  Consider which of these might be the best fit for your business.

Typical reasons for higher valuations include the business being in a long-term period of growth, a pipeline of new revenues and a solid management team.    Make sure you are able to articulate the real value of your business to your buyers, but also ensure that you unlock the real motivations of the buyer; armed with this knowledge, you can then demonstrate how acquiring your business will benefit them - and thus, drive higher multiples for the sale of your business.

You have to get the deal structure and the terms right, both for yourself and the buyer and to understand the potential, future pitfalls - of which there are many.  Even once the specifics of the deal are finalised, there is still a long way to go, all of which requires careful management of the M&A process right through from the beginning to after the sales agreement is signed. On average, more than half of the deals that begin due diligence, fail to complete. This costs you time, money and focus away from your business; with the right guidance and in experienced hands, you can avoid becoming part of these poor statistics.

 Register here for our upcoming webinar 'The Essential Guide; How to sell your business' on the 11th and 21st October

01 October 2013Boss M&A Whispers