Attention Baby Boomer business owners!
What type of buyer gives you the best chance to achieve your exit goals?
Many business owners regret their exit after the fact. Typically, that comes from a lack of preparation and a mismatch of expectations. A wise seller can take several steps to improve their chances of making a great exit.
In building a successful company, business owners become intimately familiar with customers, competitors, market risks and their employees, operations and community. But when it’s time to sell, a new set of service providers, potential buyers and capital market info needs to be understood to steer your exit from the “blood, toil, tears and sweat” you have accumulated.
Most private business owners are not familiar with the terms and conditions of selling a business. In addition, many factors influence the value of your business. Think of what you want to achieve in selling your business. There are many professional advisors that play important roles in the sale process. Get to know at least a few of each kind so that you make good decisions in selecting your team and give yourself ample time to sell.
Then, ask yourself, in whose hands will my business be the most valuable? Your time horizon affects the answer but the highest bidder does not always provide the most value. The price is the headline, but the structure (when you get paid) and the terms and conditions (risk allocation) are critical factors in a sale transaction. Furthermore, when a savvy seller has clear goals, knowing the buyer and their reasons for buying your company is critical to achieving your desired outcome and will help you understand their behavior on many issues through the diligence process and contract negotiation.
Generally, the three main types of buyers are a: 1) corporate buyer, 2) private equity backed competitor, and 3) new private equity platform. Corporate buyers don’t always pay the most and can be sensitive to capital market conditions. PE backed competitors can be aggressive, but not always. Both generally seek rapid integration for revenue and cost synergies, which can leave carnage in their wake. Lastly, PE buyers are always looking for a new platform for rapid acquisitions, operational improvements, new product development and/or new market entry. The pace of play increases dramatically and the reporting function takes a prominent role.
To know what to expect, understand your buyer’s profile and why they want to buy your company. Also know that there is a normal distribution of buyer quality. Evaluate your suitors to be sure their track record and references support their claims. A seller should not kid themselves about the exit they are making: does it have a good chance of achieving their objectives or is it a Faustian bargain?
We are just scratching the surface here, so talk to several advisors. Moreland Partners can help too. The more you know about selling your business, the luckier you will be!