When a seller decides to list a business, they are hoping to attract a lot of interest. If this occurs, the question will then be how to determine the best buyer from the pack. After going through the valuation process with a reputable source, the owner should have a clear idea of the company’s worth. Buyers may be willing to pay more or less than the valuation depending on what they are seeking. Finding the perfect match could lead to a larger sale price, more agreeable terms, and usually a quicker closing. For this reason, finding the right buyer is critical and should be a defined process from the outset.
Strategic Vs. Financial Buyers
Buyers come from a variety of places and generally consist of two types; financial and strategic. A financial buyer is usually more of an investor than an operator and tends to be focused on using investor capital and debt to fund the purchase. Similar to flipping a home, the goal of the financial buyer would be to get in as low as possible and then sell it after 5 to 10 years hoping to increase the value along the way. It is common that financial buyers will structure part of the consideration as a seller note. This will help to ensure the previous owner will keep an interest in the company’s success and potentially add to future growth.
A strategic buyer is a bit different in that they usually are larger competitors in the same or similar industry looking to improve on their existing business. Strategic buyers are looking specifically for synergies where they believe they can either increase profitability with added volume or add to their offering with a similar or related product or service. Whatever the tactic, the strategic buyer may determine a much higher [Read more…]