What kind of buyer do I want sell my business to?

What kind of buyer do I want sell my business to?

The journey to achieving a sale is a long one and starts as soon as you have started or bought the business.  But assuming you now have a business which you believe is marketable and which you would like to sell, your thoughts will turn toward – who will buy it?   

Beforehand, you will have taken all the steps to prepare the business for a clean and profitable sale which will allow you to walk away with all or at least most of the price in cash.  You will have discussed and hopefully agreed with the other shareholders and directors, if any, how you would like the sale to go.  This may well involve some compromise as it unusual for all stakeholders to agree an exit at the same time, with everyone being at different stages of their personal lives and careers.  

But assuming you have taken care of the housekeeping as above, the next step is finding the buyer.  A good start is to visualise the ideal type of buyer you would like, mindful that they come in many varieties and not every aspect of the sale may be exactly how you want it. 

OPTIONS

Trade Buyer

These will include your nearest and dearest competitors against whom you may have been battling for years.  Confidentiality is important in every business sale but especially so when you need to disclose details of your business processes and data to the old enemy.

Or, it could be a company which is in a sector which complements rather than competes with yours, for example, an IT services business with a software house.

Business Broker

Like an estate agent, they will make the initial introduction and have varying levels of involvement in the sales process.  As with selling your house, you will want to use a firm which has a successful track record in your sector but you also need to ensure you don’t get nailed down to onerous terms, with fees regardless of success, and overly long tie in periods.

Aggregators

These are essentially holding companies that buy businesses, often as part of a roll up process, but only integrate and centralise common services between them such as finance and HR.  The rest of the business continues to operate largely as before. 

Private Equity

Selling to private equity is seen as an increasingly attractive option compared to an IPO (Initial Public Offering), typically consuming less time and money.  Private Equity (PE) firms, as the name suggests, are privately funded by investors who are looking for a short turn around on their investment, usually less than five years.  The acquisition is seen not so much as a business but as a financial instrument.  PE firms are very efficient and skilled buyers.

Management Buyout

A popular approach which enables you to have maximum control not only over the sale but also what happens after the sale if, for example, you decide you would like to stay on for a few years.  You will need  people in the business with an entrepreneurial spirit, appropriate levels of competence, ambition and a willingness to take limited risks.

Employee Ownership Trusts

The UK government has incentivised owners to democratise business ownership with significant tax advantages using this approach.  Like the management buyout, it provides you with more control post-sale, though financing the deal might be a challenge to avoid a prolonged payout period.  As with everything, the benefits have to be weighed against the downside.       

SUMMARY

The list is not exhaustive but most sales will be to one of the entity types described above.  How you handle the preparation and disposal of your business is as important as any other aspect of ownership – the quality of your retirement may depend upon it.  The advice you receive at every stage is critical to the quality of the outcome.  What may initially look like a great offer can turn out to be fraught in the extreme though most people who have had the responsibility of running a business for any period of time should have a well-developed sense of scepticism. 

If you would like more details about any of the above, or guidance and input on preparing your business for sale and successfully getting through the sales process, please Contact Us for a Free Consultation and Subscribe to our Business Newsletter.