Selling your Business – Three Main Kinds of Buyers For Your Business

 

Selling your business is all about marketing and connecting your business to the right kind of buyer. This can depend heavily on the size, type and industry your business is in. We have seen more than our fair share of deals in the market, the different kinds of buyers, and their motivations. When you are looking at selling your business, we have tried our best to categorize the buyers we deal with into three main buckets or categories. By no means is one better than the other, and each buyer has a unique position which can complement a business transaction. Before listing your business for sale, your advisor/broker, will help create marketing material that is directed typically at one or more of these three kinds of buyers:

Individual Buyers

In our experience, more than half of the buyers that approach out firm are individuals looking to purchase and manage their own small business. very often these are individuals who have worked for other employers for some time, learned the ropes of managing people and professional relationships and are now looking to own something of their own. Very often, they are interested in owning their own business because they are tired of their current situation and want to try something new, that allows them to be more flexible, with a higher earning potential. Individual buyers are the most common in the under $1 million price range, and often expect to be intimately involved with the day-to-day functioning of the business. These individuals have some cash saved up and are looking for smaller businesses typically where the owner is looking to retire. 

Strategic Buyers

The second most common type of buyers are strategic buyers. These are either individuals, and/or (own) companies who are from a similar industry or background, and are looking to grow through acquisition. They realize the power and synergies that arise out of growing through acquiring complimentary businesses, or the competition itself, and are looking to integrate businesses into the same umbrella. These synergies can create opportunities to expand to new product lines, lower costs, and expanding into new markets. Strategic buyers typically look at businesses in a different light, have different access to capital compared to individuals. If in good standing, strategic buyers can very often leverage existing business cashflows to borrow more for an acquisition. Given their experience in an industry they understand common pitfalls, and what the risk on a deal is, better than most individuals. Strategic buyers play across all price ranges and are not limited to their own industry.

Private Equity Groups and Financial Buyers

These groups are the least common of buyers amongst the small and mid market business pool. They are usually either a group of investors that pool resources to buy businesses, with an investment mindset, and are looking for high returns on their investments. While these types of buyers do operate businesses themselves, it isn’t as common, and are very often looking for businesses where management teams are in place, and the owner is redundant to the day to day operations. Private Equity Groups are similar and can sometimes own a fund which invests into businesses, that potentially can complement businesses in their existing portfolios. Typically this set of buyers play in the mid market range, and usually don’t invest in businesses smaller than $10 million in price range.

Understanding these different types of buyers, when you are selling your business or looking to buy your own business will help you to understand what you are up against and their motivations. Knowing which buyer would be the most suitable fit for your business will determine the future success of your business, and help you navigate the transition as well. We are always happy to jump on a call to understand your goals, and you can reach us through our contact us page.