This is the first article in a series about how to begin the process of finding the right buyer for your business. We will discuss the options that might be available to you, some of the key decisions you will need to make, and look at a case about a business with multiple owners who have undergone this process over the last year.
So many of our business broker colleagues have told us that since the pandemic hit they have been flooded with calls from business owners who are looking to sell. It seems that Baby Boomer business owners have been through one too many economic downturns and want out.
In our experience, owners often wait until they’re good and ready to make that decision to sell. They think that they will simply find a buyer, get a fair price for the business, and move on with their lives.
However, when they do finally make that decision, they are often surprised to discover just how complex and time-consuming the process actually is, the importance of market conditions and timing, and how challenging it can be to find the right buyer.
“Selling a business is often a function of personal timing: Most owners decide to sell when they feel ready to move on. The problem with “waiting until you’re ready” is that you often miss an ideal window of opportunity to sell (also known as the last five years),” Allan Taylor & Co. wrote in a recent article.
The last five years certainly have been a boon for owners who sold, and the pandemic slowed down what was anticipated to be another banner year for M&A. But for owners who are looking to sell now, it doesn’t mean that all hope is lost.
It's the perfect time to prepare yourself and your business to sell, and make the critical decisions about which buyers are right for you and your business.
What You Need to Consider
Most owners presumably want to get the highest price when selling their businesses. However, there are other non-financial considerations when searching for the right buyer for your company, including the future impact on your employees, your business reputation, and your desired level of involvement after the sale.
There’s a lot at stake. So you want to make sure the buyer is the best fit for your situation.
Where to Start
First, you will need to determine whether you’re going to sell internally or externally, and then which buyers might be available to you with each of these broad categories – whether it’s a key employee, private equity group, ESOP, or someone else.
You can learn more about the different exit strategies that might be available to you here. We provide an overview of the most common types of external and internal exit strategies, their broad characteristics, and the types of businesses and owners best suited for each.
As you weigh your various options, it is imperative that you understand that different transfer options have different transfer values, varying fees and taxes, as well as different personal and business implications. You’ll need to consider which exit strategies will satisfy both your financial (how much money you need) and non-financial (what is important to you) objectives.
Your potential buyers may include:
- Synergistic / Strategic Buyer
- May be a customer, competitor, supplier / vendor
- Will be able to increase sales, reduce costs, increase profits immediately
- Financial Buyer
- Doesn’t have immediate synergies
- Needs all of your people and overhead to run the business
- Private Equity
- Has capital to invest for future growth and sale
- Allows you to keep some ownership in your business
- Your own Managers, Employees, Family Members, or Shareholders who want to buy you out and operate the business
Buyer Characteristics to Consider
Owners often try to sell to the wrong people. They may think that the best buyer for the business is someone close to the business – a competitor, customer, or supplier – and willingly disclose confidential business information. However, if the deal doesn’t happen, and so many do not, this can be extremely damaging. You can read about what happened to one owner who unknowingly gave away his business in this way: “Dead on Arrival: When the Perfect Buyer Becomes Your Worst Nightmare.”
Make sure to guard your information carefully and keep your intentions confidential unless you are ready to sell at a rock-bottom price.
Here are some questions to consider to help ensure that potential buyers are qualified:
- Are they financially able to purchase the business?
- Do they have the business knowledge, management experience, and skills to grow the company?
- Why are they interested in buying your company?
- What do they plan to do with your business once they own it?
- Will they accommodate your desired level of involvement?
Where to Go from Here
Even though we’re still facing uncertain times, it’s the right time to figure this out and be ready when the market improves. Finding the right buyer for your business means you need to determine your financial and non-financial goals, understand what buyers are looking for, maximize the value of your company, and find and qualify potential buyers. It means weighing all your options and possible scenarios, costs, and implications in order to find the best option for you and your business.
Stay tuned for the next part of this series on finding the right buyer – we will look at how one business with three different owners on different exit timelines assessed their various options and delve into their decision-making process.
Register for our next workshop Rebuild Your Business with Your Exit in Mind and learn what you need to know about finding the right buyer.