Selling a Privately Owned Business – Briefing 17 – Selling to a Trade Buyer
In this third in our series of blogs about different types of buyer, we look at “Trade” buyers, which essentially means any other trading business. Trade buyers are often referred to as “Strategic” buyers, because they are seeking growth by acquisition, with businesses that have synergies with their existing operations.
Generally a trade sale is the obvious choice where there is no family or management succession.
Trade buyers are the most common buyers for smaller privately owned businesses and often are the best buyers for a number of reasons:
• A trade sale is often a natural development in the life of a business, particularly for owner managed businesses, founded and developed in an entrepreneurial way by you as owner, and at the right point to move to the next stage of more formal corporate ownership.
• An understanding of your market and your type of business is essential for a successful merger, and Trade buyers will have a deeper understanding of the business which assists in unlocking full value.
• Usually there is a clear synergy between a buyer’s own operations and your business, leading to greater potential future growth and thus value.
• Generally with a trade sale, you as seller are able to exit your business taking at least the majority of the value on sale, giving greater certainty and ability to plan your future.
You will rightly be proud of your business and will have some kind of feel for what it’s worth to you, but that’s not the same as its worth to the market. Ultimately your objective is to achieve full value, not just any value on sale, and in this planning is essential.
To achieve the best value you will need to look at the business from outside, as it were, and clinically assess its strengths and weaknesses, and to be able to anticipate what external buyers may feel about it.
Typically, a trade buyer will be planning a “vertical” expansion, for example into a different part of the whole supply / service chain, or a “horizontal” expansion, for example, into new geographic markets or product lines. The trade buyer is often willing to pay for readily realisable synergies, and will often also pay for speculative synergies.
In summary, a trade buyer is more likely to evaluate your company on a holistic basis, and therefore also more likely to pay a premium for it. They will get more benefit from owning your business than what it will cost; it will add additional subjective and objective value to their existing operations.
Experience shows the best way to achieve a successful exit at full value, and particularly to evaluate the market and possible strategic buyers, is to assemble a strong team of advisors with the right experience to advise and guide you through the whole process.
8 September 2017