If you’re considering selling your business, it’s important to find the right buyer. But who exactly is this so-called right buyer?
Your choice is between a strategic buyer – a company that operates in the same or a complementary space or industry as your company – or a financial buyer, which is an individual investment company seeking acquisitions that provide favourable profit and cash flow. The key to selecting the right buyer is to identify your personal and business goals.
If you’re considering selling, here are a few factors to think about that will help you identify the right buyer:
Timeline for exiting – If you want to remain with the business for a while, a financial buyer may be a preferred partner. Strategic buyers may look to introduce their own management into the target business shortly after the transaction closes, enabling the existing owner to transition out of the business over a six-month to two-year time frame and retire or pursue other interests.
Protecting employees – A strategic buyer may want to integrate your company within their existing operations, which may translate into reducing head count at your company to achieve synergies or economies of scale. Consequently, if protecting loyal employees is a high priority, look for strategic buyers aligned with this goal. A strategic buyer entering a new market through acquisition may need to keep all existing personnel.
Maintaining company culture – In many instances, finding a buyer that shares your business values, like commitment to community, is very important. One client, with a business in a small town, had a primary goal when structuring the transaction to ensure that his legacy of supporting the community and the employees remained intact.
He told me: “I live in this community and when I run into former employees in the local grocery store, I need to be able to look them in the eye and ask ‘how are things going?’”
In some instances, it can be a challenge to find a strategic buyer that will guarantee the company’s culture and values will be maintained.
Taking on risk – With a strategic buyer, you are likely to have little or no execution or industry risk after the transaction, unless you agree to an earn-out as part of your deal. You’ll continue to hold execution and industry risk with a financial buyer, with additional risks associated with shared governance and control. Deals with financial buyers also typically involve recapitalizing the balance sheet, meaning additional risk to ongoing operations of the business due to added leverage on the balance sheet.
The sale process is complex and starts with an open dialogue around what the owner is looking to achieve. Understanding your goals, it is then possible to develop a strategy and identify prospective buyers that are most likely to maximize the achievement of those objectives. With planning, you can execute a transaction that will be satisfactory in more ways than just financially.
Blair Gronlund is a business advisor with MNP LLP in Vernon. This article is provided for information purposes only. Please consult with a professional advisor before implementing a strategy.
