Whenever we ask our clients what they think the potential acquirers of their businesses are looking for, they inevitably first respond with, “a low price.” Pricing is an important component, but there is a lot more to it. Here are the top 5 things buyers look for in a business acquisition:
1. A Fair Price
Most buyers are willing to pay what is fair for a business (and not any more). Yes, if they could get the same company at half the price, they’d take it, but there would be major red flags about what is wrong with it if it were to sell too cheaply. The catch is that what a buyer and seller view as a fair price is not always the same thing. Business owners often have their own perception of value, which may or may not be based on the same data acquirers use to calculate what they would be willing to pay.
An experienced business broker will be able to use a company’s financial information and their own industry knowledge to develop a realistic valuation range of the probable sales price. Having that information before going to market will allow the seller to have more realistic price expectations.
2. A Good Fit
Obviously finding an appropriate acquirer is important. There are 2 main categories of buyers: individuals and companies. Individuals more often than not buy companies that fall within their area of expertise. Occasionally we encounter those wanting to try something completely new, but they are the exceptions to the rule. Finding individuals whose experience is a good match is difficult (as all of you who have tried to hire managers know). Now add in the important complications of finding someone with that experience, who has the personal fortitude to want to step out on his/her own, AND who also has enough financial wherewithal to afford to purchase your company, and you see where the art of a targeted marketing effort pays off.
When companies use acquisition to expand, they are typically looking to increase their geographic area (same industry acquirers) or to provide more depth of service to their current customers (synergistic acquirers). Accessing the key decision makers in organizations in both these realms is a vital part of marketing any organization. What is absolutely vital when approaching competitors or suppliers is to maintain confidentiality. If word gets out that your company is for sale, it can devastate sales as your clients start to take their business elsewhere, and vendors become reluctant to issue credit. Also, do you really want to give your competition a peak at all your company’s internal documents? For all these reasons, it is essential to handle these negotiations carefully.
3. Reliable Records
While having an in-depth, well-written overview of the company will pique buyer’s interest, it is vital that the company’s documentation support what was presented. An honest disclosure of the business is the best protection against future litigation. It also can foster a sense of trust from the buyer since it is not a “rose colored glasses” view of the company. Presenting both the good and the bad allows the buyer to make an educated decision about your organization, which can reduce the amount of perceived risk that he or she would be taking on.
4. Serious Seller
The last thing the buyer wants to do is expend a great deal of time, energy and money doing a complete due diligence of a company to have the owner back out at the last minute. One way to demonstrate to a buyer the seriousness of one’s intention to sell is to have a well developed plan for life after the business is sold. Whether it is moving to a different part of the country, retiring, or traveling the world, the “what” doesn’t really matter. “I don’t know what I’ll do” can be a kiss of death to a transaction because it shows the seller hasn’t thoroughly thought things through … and therefore might not follow through with the transaction.
5. A Vision for the Future
People who buy companies for the most part are not looking to maintain the status quo – the entrepreneurial spirit that drives them to work for themselves also motivates them to move things forward. For that very reason, it is up to the sellers to demonstrate that there is potential for growth within the company, even for businesses that are doing really well. One of the exercises we do with our clients is to have them imagine that they are 20 years younger and have unlimited capital: What would they do to expand the business?
While having ideas for the future is important, it is equally as important to realize that potential buyers might have radically different plans for the business. Once the contracts are all signed and final handshakes made, the company is theirs to do with as they please. This letting go can be difficult for some owners, even if they are completely burned out. Accepting that someone else can run your “baby” is part of the sales process.
Understanding what buyers are looking for is an important first step in marketing your business for sale. Some people are able to navigate the waters on their own and sell their businesses themselves. Others look to professionals to help them. Check in next week to see what questions you should ask when hiring a business brokerage firm.
1. A Fair Price
Most buyers are willing to pay what is fair for a business (and not any more). Yes, if they could get the same company at half the price, they’d take it, but there would be major red flags about what is wrong with it if it were to sell too cheaply. The catch is that what a buyer and seller view as a fair price is not always the same thing. Business owners often have their own perception of value, which may or may not be based on the same data acquirers use to calculate what they would be willing to pay.
An experienced business broker will be able to use a company’s financial information and their own industry knowledge to develop a realistic valuation range of the probable sales price. Having that information before going to market will allow the seller to have more realistic price expectations.
2. A Good Fit
Obviously finding an appropriate acquirer is important. There are 2 main categories of buyers: individuals and companies. Individuals more often than not buy companies that fall within their area of expertise. Occasionally we encounter those wanting to try something completely new, but they are the exceptions to the rule. Finding individuals whose experience is a good match is difficult (as all of you who have tried to hire managers know). Now add in the important complications of finding someone with that experience, who has the personal fortitude to want to step out on his/her own, AND who also has enough financial wherewithal to afford to purchase your company, and you see where the art of a targeted marketing effort pays off.
When companies use acquisition to expand, they are typically looking to increase their geographic area (same industry acquirers) or to provide more depth of service to their current customers (synergistic acquirers). Accessing the key decision makers in organizations in both these realms is a vital part of marketing any organization. What is absolutely vital when approaching competitors or suppliers is to maintain confidentiality. If word gets out that your company is for sale, it can devastate sales as your clients start to take their business elsewhere, and vendors become reluctant to issue credit. Also, do you really want to give your competition a peak at all your company’s internal documents? For all these reasons, it is essential to handle these negotiations carefully.
3. Reliable Records
While having an in-depth, well-written overview of the company will pique buyer’s interest, it is vital that the company’s documentation support what was presented. An honest disclosure of the business is the best protection against future litigation. It also can foster a sense of trust from the buyer since it is not a “rose colored glasses” view of the company. Presenting both the good and the bad allows the buyer to make an educated decision about your organization, which can reduce the amount of perceived risk that he or she would be taking on.
4. Serious Seller
The last thing the buyer wants to do is expend a great deal of time, energy and money doing a complete due diligence of a company to have the owner back out at the last minute. One way to demonstrate to a buyer the seriousness of one’s intention to sell is to have a well developed plan for life after the business is sold. Whether it is moving to a different part of the country, retiring, or traveling the world, the “what” doesn’t really matter. “I don’t know what I’ll do” can be a kiss of death to a transaction because it shows the seller hasn’t thoroughly thought things through … and therefore might not follow through with the transaction.
5. A Vision for the Future
People who buy companies for the most part are not looking to maintain the status quo – the entrepreneurial spirit that drives them to work for themselves also motivates them to move things forward. For that very reason, it is up to the sellers to demonstrate that there is potential for growth within the company, even for businesses that are doing really well. One of the exercises we do with our clients is to have them imagine that they are 20 years younger and have unlimited capital: What would they do to expand the business?
While having ideas for the future is important, it is equally as important to realize that potential buyers might have radically different plans for the business. Once the contracts are all signed and final handshakes made, the company is theirs to do with as they please. This letting go can be difficult for some owners, even if they are completely burned out. Accepting that someone else can run your “baby” is part of the sales process.
Understanding what buyers are looking for is an important first step in marketing your business for sale. Some people are able to navigate the waters on their own and sell their businesses themselves. Others look to professionals to help them. Check in next week to see what questions you should ask when hiring a business brokerage firm.
No comments:
Post a Comment