This is the first in a multi-part series on identifying the most logical buyer for a business.
Selling a business is not just about finding anyone to buy it – it’s about finding the right buyer, the most logical buyer. Identifying a logical buyer requires defining the type of person or entity to whom you’d most like to sell, which in turn involves a deep dive into the owner’s goals, both personally and professionally, for the outcome of the transaction.
We can generally categorize buyers in one of three ways. There are individuals, who are effectively buying themselves a job, looking for a company they can run while simultaneously improving its value so they achieve a return on their investment. There are financial buyers, who are purely looking at the business as an investment and typically don’t get involved in day-to-day operations. Examples of financial buyers are private equity firms, family offices, and high net worth individuals or families who own a portfolio of private companies. Finally, there are strategic buyers, who operate much larger businesses in the same or similar industries and make acquisitions as a means to expand market share, acquire a new technology or capability, vertically integrate (e.g. a manufacturer buying a distributor), or eliminate a competitor. Strategic buyers can be smaller, local or regional competitors, or large national or multi-national organizations.
While other buyers are occasionally in the mix, these three represent the vast majority of transactions involving small and middle market companies. Choosing which of the three is your primary target involves a deeper understanding of their acquisition philosophies and your own objectives, both financial and non-financial.
The first step is to determine which of these three are likely to be interested in your business. This will largely be based on your industry and the size of your company, although geographic market, financial and operational performance, and intellectual property may come into play.
In the following articles in this series, we’ll explore the defining characteristics of each buyer type and the impact each can be expected to have on your business and your legacy, and provide a framework for determining the most logical buyer for you.