Selling a Privately Owned Business – Briefing 11 – Finding a Buyer
Any business can be sold in
some way or other in the market, even if it is underperforming or deemed
The key objective is always to
maximise the value on sale and achieve the best price, and so finding the right
buyer – not just any buyer – is critical to achieving this.
Set out below therefore are ten
helpful tips to finding the right buyer for your business.
personal objectives will help determine who might be the best buyer. Those
objectives will usually be a balance between financial issues, such as
achieving a particular price and human factors, for example securing the future
of the business.
ideal buyer will normally be a combination of one who will pay a good price,
who will add value to the business and to the management and employees.
shape and structure of a deal will also influence your choice of buyer. You will want a fair balance between cash on
completion of the sale, any deferred consideration and potential additional performance-based
the small business market there are basically four types of buyer: internal
buyers; individual / entrepreneurs; trade buyers; and financial buyers.
buyers usually comprise some form of management buyout (MBO), with or without
additional external management (MBI) or a combination of the two (BIMBO). This can be attractive to you as vendor, in
particular dealing with known parties and the relative simplicity of the
process. Those advantages can often however be outweighed by difficulties in
buyers will mainly be entrepreneurs, or possibly investors, seeking a suitable
business opportunity to satisfy their own objectives. These buyers will often conclude a deal because
of a sheer empathy with the business, and a chemistry with you, which can often
transcend practical issues. However,
individual buyers bring no business synergies to a deal and thus the value to
them, and their ability to fund the purchase, can be lower than other types of
buyers are the most common and often the most favoured buyers, because trade
acquisitions are normally a strategic purchase.
Serious trade buyers will see additional future value from the business
fit and future synergies, which will enable them to justify a higher price
based upon genuine merger value.
buyers are generally some form of venture capital or private equity house;
often seeking to build a portfolio of related businesses. Once again there is often good future value
through the melding together of these businesses, although this can be offset
by most financial buyers desire to capture any business at the lowest possible
entry price, as this will determine the eventual capital return on their investment.
business owners often consider known parties, such as competitors, suppliers or
past unsolicited approaches as a route to a quick and easy sale. However, whilst these may sometimes prove
worthwhile, generally they should be regarded as “buyers of the last
resort”. The main danger is in
maintaining confidentiality and the potential damage to the business in
providing commercially sensitive information directly to the outside world. Furthermore, experience shows that for every
known buyer there are numerous others just as good if not better. Finally, known buyers rarely pay the best
price, since the value to them is dictated by their own circumstances and not
by market value.
secret to a successful sale is always to undertake the most comprehensive
marketing of the business, in a controlled and confidential way, creating
competing interest to achieve maximum value.
Finding the “right” buyer to
achieve the best possible price is so important, that in almost every case it
is essential for a small business owner to find some form of external
specialist help – and assuming you are using an advisor, they will carry out
this key task for you.
12 November 2019