Selling a business is often a once in a lifetime decision, and finding the perfect buyer is crucial to a successful deal outcome. Financial gain is just one piece of the puzzle as many business owners prioritize additional factors like preserving their family legacy, taking care of their employees, and ensuring a cultural fit for the future of their company.
Identifying Qualified Buyers
- Goal Setting: Investment bankers work closely with business owners to understand your unique objectives and aspirations for the business sale. Various potential buyers, including strategic partners, competitors, private equity groups, and family offices, will be discussed. The pros and cons of each buyer type will be explored further on in this post, but the key takeaway is this: your investment banker will only target buyers who align with your vision for the future of your company.
- Sourcing Buyers: Leveraging extensive internal industry research and M&A data resources, the deal team meticulously identifies high-quality buyer candidates who best fit your established criteria. This creates a targeted list, ensuring time is spent with and information is only disseminated to qualified and compatible buyers.
- Editing the Buyer List: The prioritized list of potential buyers is presented for your review and discussion. Any companies that you identify as not being a good fit due to strategic misalignment or market dynamics will be removed. The goal is to establish a list of highly compatible buyers, each with key decision-makers identified for confidential outreach. Most final buyer lists include a mix of all the different buyer types so the owner can assess all the market has to offer for their business.
- Outreach to Buyers: Once the list is finalized, investment bankers discreetly connect with key decision-makers at targeted buyer and investor firms. Each party is educated about the unique value proposition of your business. This creates a competitive environment, ultimately leading to compelling bids that reflect the true value of your company.
Should I sell my company to a strategic buyer, private equity group or family office?
Each type of potential acquirer offers advantages and considerations. Let’s explore the key characteristics of three common buyer profiles: strategic buyers, private equity groups, and family offices.
Strategic Buyers
- Synergy Seekers: Strategic buyers are often companies in your industry or a complementary one. They see an opportunity to create value by combining your operations with theirs, leading to a potentially higher valuation for your business. Additionally, their familiarity with your industry can streamline the due diligence process.
- Driving Value: Strategic buyers are invested in maximizing the overall value of the combined entity through growth initiatives and cost synergies. This will drive value for your business even if they are not the ultimate acquirer in the process.
- Enhanced Resources: Most strategic buyers bring a complement of resources to bear that can provide your employees, customers and suppliers new avenues for advancement within the combined organization.
- Clean Breaks: Strategic buyers typically aim for a full acquisition, allowing you to exit the company completely if that aligns with your goals.
Private Equity Groups
- Market Force: Private equity groups have proliferated over the past decade significantly improving the liquidity options for privately held business owners looking to sell. With thousands of them in the US alone, they aim to differentiate with the approach they take from ownership control, operational support and industry focus.
- Continued Involvement Possible: While some private equity groups prefer full ownership transitions, others offer the option for you to retain an ownership percentage and stay involved in directing the company’s operations.
- Growth Partners: Many private equity groups provide strategic and operational support to help your business achieve further growth.
- Hold Period and Management Transition: Private equity groups typically have an investment horizon for exiting their investments (usually 3-7 years). Many typically require existing owners in a management role to commit to some length of transition before fully exiting the company.
- Finding the Right Fit: There are a variety of private equity groups across all industries and geographies, and it is optimal to choose one that aligns with your company culture and strategic direction.
Family Offices
- Long-Term Vision: Family offices often take a longer-term view than other buyers. This can be appealing if you’re looking to preserve your company’s legacy and maintain some degree of independence.
- Conservative Approach: Family offices typically do not have a hold period, so they often prioritize the long-term health of the business and may be less reliant on high-risk debt financing.
- Passive Investors: Family offices typically take a more passive investment approach, focusing on board-level involvement rather than day-to-day operations.
Understanding the process for identifying buyers and the key differences in three common buyer profiles empowers you to make informed decisions about your business sale strategy. Your ideal buyer will depend on your unique goals and priorities.
The Takeaway:
Identifying the most qualified buyers for your business will help streamline the sale process and pave the way for you to immediately connect with your likely buyers. Investment bankers will lead you through the buyer sourcing and qualification process, but you will have the ultimate say in who is contacted about the opportunity to learn more about your business. As an owner you should consider the differences in the types of buyers you might encounter including strategic buyers, private equity groups and family offices. Most buyer lists will include a mix of all three different buyer types to best survey the market’s response to your business.