Seller Tips
Our experience over the past 30 years tells us that there are 7 types of buyers for most businesses .
The primary questions that you, the seller of a business, needs to answer are:
Which buyer is right for you?
Who will give you the most total value for the sale of your business ?
Below is a list of the 7 types of business buyers. Click on them to reveal their characteristics; and some areas of caution.
Strategic Buyers
Add, diversify, or expand into a new business
Expand geographically or looking for synergistic fit (products & services)
Consolidation of functions typical (accounting, purchasing, human resources, etc.)
Owner may not be required to stay unless “Earn-out Deal Structure.”
Caution: Anticipate some of your people will be made redundant
Financial Buyers
Looking for consistent or higher earnings – increased earnings per share if buyer is a public company
Looking for growth opportunities and possible add-on acquisitions
Exit strategy – sell company or take public
Management Team expected to stay – few if any people made redundant. Owner can exit after earn out if management team is strong.
Caution: Looking at pure economics of the deal
Private Investment Groups – Equity Funds
Looking for synergistic fit with their portfolio companies if target company meets their investment criteria (revenues, EBITDA, etc.)
Looking for new “Platform Company” for eventual add-on acquisitions
Transaction will typically be a “recapitalization.” 70% to 80% equity in company with upside 3 to 5 years out through an IPO or sale
Not interested in day-to-day operations
Will provide strategic direction at the Board level
Caution: Requires strong management team in place
Industry Consolidators
Typically use the IPO “roll-up” as a strategy and then add-on acquisitions
Could be an equity group or a dominate company in the industry
The question – is bigger better if you are in the same geographic area with the other companies in the “Roll-up”; and have very little synergy with the other companies?
Owner/sellers can anticipate a small amount of money upfront with company (buyer’s public) stock as major percentage of purchase price
Not an exit strategy unless a strong management team in place
Caution: Most IPO “roll-ups” in the 1990’s performed poorly
Caution: Typically 144 Restricted Stock and may have to wait in a long line to sell stock
Downsized Executive
Could be a good alternative if he has significant cash for down payment and company lacks a strong management team
Evaluate his entrepreneurial skills vs. big company mentality. He may not be a “Hands On” person if this is needed
Consider a “Phased” transaction
Buys percentage of equity to learn business with option to buy remainder of shares
Caution: Avoid risk of taking note and substantial earn-out paid out of profits. You could get the company back
Management & Employees
Could be a good deal if a LBO-Leveraged ESOP (Employee Stock Ownership Plan) strategy is used
Don’t waste time or share financial and confidential information until they “HAVE” a commitment to finance the transaction – not “IF” they can arrange the financing
Caution: If leveraged ESOP is used, be prepared to pledge your proceeds from the sale (QRP) as collateral for their loan
Competitors
Can typically expect consolidation of functions and people made redundant
Caution: Confidentiality extremely important in discussions – avoid word “Leaking” on street that you are for sale or in trouble – negative impact with customers
Caution: Competitor has valuable information if deal does not close (customer list, pricing strategies, etc.)
Caution: May not maximize value compared to other buyers