When business owners decide to sell and retire, finding the right buyer is probably the most important and most difficult task. After all, the right buyer will maximize the transaction’s value and determine the company’s future culture and direction.
So, selling well requires a nuanced understanding of potential buyers and their motivations, objectives, and strategies. The most common buyers are described below.
- Strategic buyers are privately held or publicly traded companies operating within the same industry or a related/adjacent industry. They aim to enhance their market position, expand product/service offerings, or achieve synergies that boost competitiveness. Strategic buyers usually have a long-term vision and a willingness to invest in their strategic objectives.
Financial Buyers (Private Equity Firms)
- Private equity (PE) firms aggregate funds primarily from institutional investors or pension funds and invest those funds in acquiring companies. They are driven to generate attractive returns for their investors, so PE firms seek businesses with strong cash flow, growth potential, and opportunities for enhanced profitability and scale – often through “add-on” acquisitions. Importantly, PE buyers generate returns when they exit a business, so they typically plan to re-sell the company in 3 to 7 years.
- Individual or entrepreneurial buyers often combine industry or technical experience with a desire to own a business and generate wealth. These buyers could be former executives, professionals, or entrepreneurs. They usually seek smaller to medium-sized businesses, which they acquire using personal funds, loans, or a combination of both. Individual buyers are perfect for some businesses, but it’s important to carefully screen them to ensure they have the resources and aptitude to be successful.
It’s common for a good business to appeal to two of these categories – or perhaps even three. In any case, the goal is to engage multiple qualified buyers in the process. That requires contacting them proactively (and confidentially), screening them carefully, and telling the company’s story honestly, clearly, and compellingly.
If you want to learn more about the potential buyers for your business, please contact us for a free, confidential discussion.