A large number of business owners contemplate selling their business via a merger or acquisition at some point during its lifetime, either for personal reasons or to move the business into the next phase of its evolution.
Any decision to sell requires careful planning and preparation, not just in terms of timing but also in terms of appealing to the right type of buyer, both to generate maximum returns for you as seller and to take the business forward.
This article outlines the four main types of M&A buyers and what might appeal to each one, allowing you to identify the right buyer for your business and to develop an appropriate divestment strategy.
Financial buyers typically consist of private equity (PE) firms, who value a business solely on its numbers.
Financial buyers often have two main goals: generating a high return in the short term and developing an exit plan in the medium term that maximises their overall returns. They will typically use capital to grow the business in this period and will want to know from you where to apply that capital so as to generate those returns.
Financial buyers are often more flexible than others in terms of the purchase price, financing, and deal structure, including often not needing to buy the business outright. As they buy businesses regularly, they offer a well-managed transition and also can bring additional processes and professionalism to the business going forward. There may be little disruption for your employees.
What appeals to financial buyers?
A well-managed business with a reliable management team, that has detailed data demonstrating solid returns to date and has robust plans for future growth and increasing EBITDA.
Strategic buyers are typically public or private companies looking to acquire other businesses within the same or an adjacent industry in order to strengthen their market position, access a new market, customers or technology, diversify their product or service base, acquire intellectual property and/or access additional talent.
Strategic buyers usually intend to fully integrate your business with theirs and focus on long-term fit and value, synergies and economies of scale. They have their own strategies and objectives in acquiring your business and typically will not follow your vision or future plans. Employees may be at risk of future redundancy. They are, however, often willing to pay the highest multiples and can add significant value to your company through their knowledge and expertise.
What appeals to strategic buyers?
A business with distinctive value, either through its products and services, developing or developed technology, intellectual property, customer base and/or market share, that will generate long-term value and returns. This requires detailed analysis of all your business assets and potential for growth together with areas of potential synergy.
Industry buyers are typically buyers that choose to merge with or acquire direct competitors.
This can occur for a number of reasons including if your business is making less than optimum returns or the specific industry is in a downturn and as a result, your business does not appeal to another type of buyer. Industry buyers are often seen as a last resort as they usually pay the lowest price, due to their in depth industry knowledge. They may look to cherry pick and only buy specific assets and employees may be at risk of future redundancy.
Similarly to strategic buyers, industry buyers are looking to increase their market share, acquire intellectual property, find ways to synergise and save costs.
What appeals to industry buyers?
A business that offers them options to save costs, access additional customers and technology or talent. This requires detailed analysis of where these synergies and/or opportunities may occur in order to unlock additional value from the process.
Individual buyers are the least common type of M&A buyer. They are often high net-worth individuals and generally have two main goals in making the purchase: independence and income. They may be looking for opportunities that align with their past experience or interests. Their primary concerns relate to the risks associated with the business and whether they can obtain finance for its purchase.
Individual buyers may allow the business to continue with its existing vision, strategy and workforce but may bring little in terms of contacts, resources, expertise or vision to create future growth.
What appeals to individual buyers?
A well managed business with a proven track record and limited risk.
It is always wise to plan for the sale of your business, allowing plenty of time to assemble the right team, prepare the necessary documentation and anticipate your buyer needs and potential objection.
For more answers to commonly asked questions and advice on mergers and acquisitions, consult our M&A solicitors. Get in touch on 0800 689 1700, email us at firstname.lastname@example.org, or fill out the short form below with your enquiry.