When considering selling a business, business owners often have a number of key factors in mind. These questions relate to who you sell your business to and what is motivating that decision.
- The first consideration is always, What is my business worth?
- The second consideration is usually, Who should I sell to?
There may never be one perfect answer to the question who should I sell my business to? Sometimes, the perfect buyer just isn't in the market at the right time, or there may be several other mitigating factors at play that prevent a successful sale.
However, finding the best suited buyer is not always about seeking the best price. It's about understanding your motivations for sale, their motivations for purchase, and finding the right fit for both parties.
Nash Advisory helps business owners reach their ideal outcomes. If you are considering selling a business, get in touch with our expert team.
Types of buyers
At Nash Advisory, we most often come across two types of buyers. Both of these are different in their goals, but can still yield great results for your business.
These two types of buyers are:
- Trade, or strategic buyers
- Financial buyer
Trade, or strategic buyers are companies in your industry or similar industries who have the ability to acquire companies and use their size and reach to extract synergies from the acquisition.
As a result, trade buyers are often seen as good options for buyers because they represent:
- Higher valuation for the business
- Greater long-term focus with respect to returns and profits
- Improved alignment for your existing business, staff and management team
- Better understanding of your industry or specific business operations.
Trade buyers are deeply invested in the company on both a financial and strategic level. They see an acquisition as a tool that will help them grow their own business to much greater heights than before.
However, there are also several reasons why trade buyers may fail to make a full commitment to a sale, including:
- Poor timing, whether they are underfunded, undergoing reviews, or trying new corporate structures
- Poor internal management of past transactions, and internal resources
- Adverse to taking risk, and wish to protect their company as it currently exists
[feature_link]If you'd like to learn more about why trade buyers fail in business deals, visit our in-depth resource on the subject.[/feature_link]
In essence, trade buyers are buying your company as they view it as value-accretive to their business, accelerates their growth in existing or new markets, or sometimes can be a way to absorb competitors.
Financial buyers have a primary focus on the returns generated from the business from cash flows and capital growth. Their focus tends to be in the short to medium, 3 to 5 year term, as they look to maximise their returns over their holding period.
This benefits the business through:
- Strong growth in value over the short to medium term
- Alignment through earn-out mechanisms or staged buy-outs
- Potential for IPOs, or selling the company onward to trade buyers or other financial buyers in the future
When preparing your business for sale to a financial buyers, it's important to understand these key motivations, and to position your business in the most favourable light.
There are also several common reasons why financial buyers may pull out of a sale, including:
- Insufficient data from the business to support the existing and proposed growth of the business
- Messy or complicated corporate structures (e.g. with multiple trading companies, trusts or complicated ownership models)
- Lack of a sophisticated management team to run the business post-acquisition
- The company they are buying has not adequately prepared for the sale
Read our article on the top 10 reasons business fail to sell.
Learn more about preparing your business for sale by visiting our resource centre, or contact the team at Nash Advisory.
Financial buyers are buying your company for its profitability so it is important to ensure the business is presented in the best possible manner, and that any trading updates during a sale process continue to track positively.
Who should business owners choose?
For business owners, balancing the different pros and cons of the types of buyers can be difficult. Often it may come down to the right timing and the right buyer, in which case the choice can become clear.
The buyer you choose should be based on how well they suit your needs and requirements. These can include:
- Price today
- Price today plus any earnouts / deferred payments over time
- Growth prospects
- Long term vision for the business
- Appetite for growth
Every business and circumstance is different, so it's important that you receive detailed, expert advice on your situation.
Contact Nash Advisory
The team at Nash Advisory have worked with many business owners to canvass the market and assess the right pool of buyers.
After a detailed process, we approach the best candidates in order to maximise the potential value of the business, and ensure the best possible outcome for the business owner.