When an owner decides to sell their business, there are different types of buyers and factors to consider. Most sales of businesses are win-win transactions, with serious and qualified buyers. However, there are a few exceptions and sellers should consider them carefully. A seller should balance their prerequisites to the goals of the buyer.
Selling to a Competitor
Many owners think selling to a competitor is the best way to go. They read about mega-mergers. In large public companies consolidation may play a major role, however, this is not the case in middle market companies.
Many owners of middle market firms think these mega deals might work for them. Upon further consideration they realize that by disclosing a lot of confidential information to a competitor, their business could suffer irreparable damage if the deal falls apart.
Selling to a Strategic Acquirer
Selling to a strategic acquirer may bring the highest price, but this may not be in the company’s best interest. Many owners have worked with key employees for years and would not like to see them replaced. The strategic owner might not only replace members of management, but they might also move the company to another part of the country.
Selling to a Financial Buyer
A financial buyer may not be willing to pay the seller’s price. This type of buyer is usually buying a company with intentions of selling it at a profit in three to five years. This leaves the company and its employees in limbo waiting for a new owner to take over.
The “Overlooked” Buyer
There are many individuals who want to own their own company. They might be former executives of major companies who want to do something on their own. Some buyers have access to large amounts of investment capital. There are many qualified individual buyers in the marketplace.
Other types of buyers include employees who may decide to buy the company (ESOP). This usually means a long-term payout for the owner. An rich individual buyer may come along, but what are the chances? A key member or members of management might decide to purchase the company, but generally they won’t pay the price. If a sale is not consummated, the key management member(s) will most likely leave.
There is no magic answer. There are different types of buyers and different factors involved in selling a company. Selling a company comes with no guarantees. Selling to the overlooked type of buyer doesn’t guarantee all of the seller’s concerns. Knowing the interests of some of the various buyer types can help insure that the goals of both buyer and seller are met. Sellers should determine their goals prior to attempting to sell their business. EBIT Associates can help guide you through the process of selling your business.