Selling a Privately Owned Business – Briefing 19 – Selling to a Trade Buyer
In this final blog in our
current series 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
Often 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.
30 December 2019