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Who Are The Business Buyers Out There?

aWho should I sell my business to

Who should you sell your business to? There are a lot of options out there, so let’s take a look…

There are many ways to segment the business buyers in today’s market. The key thing is to understand that there are lots of them, and some will pay more for your business than others. To maximise your exit, find a strategic buyer rather than someone who is looking to buy themselves a job.

Buying a job

There are many people who are earning 60k but want to earn 100k.

One pathway to get the 100k job is to buy it. To maximise your sale, avoid these buyers.

High net worth individuals

These people have money and are looking for investment options. Some want to be owner operators, and some want to own a “managed business”. They could be recent inheritors of an estate, wealthy immigrants, successful traders or family groups. They are largely not industry specific.

People in this segment back themselves to learn your business and run it better than you do. Don’t fall into the trap of thinking you have to sell to someone in your industry, you may get more if you look outside your sector.

Private equity

Normally speaking private equity (PE) won’t look at businesses turning over less than $20 million, though there are now several PE companies financing management buy-outs and other scenarios for companies a lot smaller than this. If you have team members that want to buy the business, but can’t afford it, talk to us about this option.

Strategic

There are two broad types of strategic buyer. The first is your opposition and the second is someone who wants your route to market.

Strategic 1 — Opposition

A logical strategic buyer for most businesses is your opposition. In a simple scenario they can essentially shut you down and take your market share. Normally it is cheaper for them to buy you than to try and win your market share, and it is another player taken out of the mix.

Conversely you are normally worth more to them than you are to an individual buyer as they will look at your numbers in a “bolt-on” scenario. It is important to have your numbers pre-calculated before going to market (i.e. understanding what costs and infrastructure/stock are directly associated with the revenue you are generating).

Strategic 2 — Route to market

These are the best buyers, that is the buyers that pay the most. These are companies that are after your customers, or your route to those customers, to enable them to sell their products (think LinkedIn being bought by Microsoft). The value equation shifts from how much you are selling to how much they could sell of their products/services to your customer base.

It is no longer a question of the profitability (potential or actual) of your business, but the value of your “route to market”. Many S.A.A.S. (software as a service) businesses, that have a low likelihood of ever returning a profit as they are, sell for a lot of money for this very reason.

Summary

EndVision strongly believes that if you don’t understand who is going to buy your business, you are likely to build the wrong type of business. Equally, we believe having a clear exit strategy makes your pathway to a maximized exit a lot more likely.

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