If you are considering selling a business in Southwest Florida, you should be thinking about how to market it to as many buyers as possible. Other than aspiring new business owners, there are a couple of different types of buyers whom you should turn your attention. Each has its own set of value indicators that are important to them. Understanding what those indicators are could help you find the right buyer for your situation and help you get the most out of the sale process.
A strategic buyer is usually a larger corporation who sees value in some aspect of your business, or a way to leverage it to improve theirs. Typically, these buyers are from the same industry and have a variety of reasons for being interested in your company. Your company may provide them with the opportunity to expand into new markets, increase their market share, and acquire intellectual property, technology, expertise or resources.
Strategic buyers are usually willing to pay higher prices because they expect to enhance the value of their company by merging it with yours. Although you may fetch a higher asking price from a strategic buyer, there are a few drawbacks from dealing with them. They usually lack experience handling sensitive information and have a greater temptation to damage a competitor, which leads to a higher risk of information leaks. They typically want to purchase 100% of the company, and are not interested in partial sales, such as a stock sales. After closing, there is a strong possibility that they will want to close facilities, lay off employees or disrupting business continuity. This does not bode well for anyone who wants to preserve their company’s legacy and prevent their staff from being displaced. Strategic buyers also typically operate slower than financial buyers.
Financial buyers have a strong interest in acquiring private companies. This group includes private equity firms, hedge funds, investment firms, high net worth individuals and venture capitalists. The top 25% of private equity firms are currently sitting on over $500 billion in uninvested cash. This makes up about 22% of global dry powder money and is one reason why financial buyers currently dominate the market for business acquisitions. These buyers are looking for successful, proven, stand-alone companies to help built equity and generate strong returns. They seek to do this through expanding existing businesses or improving an underperforming ones. Financial buyers also look to add value through add-on acquisitions, where they combine a new acquisition with one of their platform companies.
In contrast to strategic buyers, financial buyers are sophisticated and move quickly. Because of their experience, they know how to handle sensitive information. However, they may also have stringent contract terms geared towards mitigating their investment risk. Financial buyers usually have an aggressive due-diligence grind, where they try to bring down the price of the business. Their valuations are closely tied to credit markets, specifically in the US. They also typically require that management stay with the company for at least a year and maintain equity exposure of at least 20%. Management retention is important to them, as they are looking to get a quick return on their investment, so they don’t typically want to restructure and will probably ask the owner to stay on. These buyers on average hold the business for 3-7 years and seek realize 2 to 5 times their initial investment.
The Preferred Buyer
Your situation will dictate which buyer is the best for your business. If you are looking to retire, get completely away from your business and sell for the highest possible asking price, a strategic buyer is the best option. Sellers who want to stay involved in the business, continue to help it grow or keep generating income from the company should try to sell to a financial buyer. This would allow them to get some money out of the business, and slowly separate themselves from it over the course of a few years. No matter which situation you identify with most, make sure you are represented by an M & A advisor, such as a business broker. A broker can help keep the sale of your business confidential and manage the transaction process, which are both big needs when dealing with strategic buyers. Their experience can also be very valuable when handling difficult negotiations with more sophisticated financial buyers. Whether you are looking for the right buyer, or trying to close a deal with one, a business broker is an invaluable resource.
Corporate Investment Business Brokers (CIBB), headquartered in Fort Myers, has been helping business owners sell profitably for over 35 years. Our goal is to find the right buyer for your business and sell it on your terms. We have connections to a variety of different types of investors looking to purchase successful, proven businesses in Sarasota, Naples, Fort Myers and everywhere in between. Contact us to get a free business valuation and no-obligation consultation.
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