There are four main types of buyers:
Financial buyers are firms, wealthy individuals, or people supported by wealthy individuals who buy businesses. They either hire people to manage the business or manage it themselves. Although they do not necessarily benefit from any synergies from acquiring businesses, their deep pockets and access to debt capital enable them to offer attractive prices.
Strategic buyers are firms that are either in your industry or that want an asset that your business has. That asset could be software or goodwill in a certain market, for example. Strategic buyers anticipate benefiting from being able to increase revenue or decrease cost because of the synergy between your firm and theirs. Theoretically, these firms should be able to offer the highest price. However, sometimes these firms prefer organic growth and internal product development over business acquisitions. In addition, these firms are often unwilling to take risks that financial buyers are willing to take.
Employees of your own firm can be suitable acquirers. Employees in sales or operations leadership roles sometimes have the know-how to continue operating the business where they work. Often, however, they do not have the financial resources to acquire their employer. In these cases, it is important to engage an experienced advisor to structure a deal that is financially workable to the employee and protects both the owner and employee. Protecting the seller from the pitfalls that exist when selling to an employee unable to take large financial risks requires specialized skill. Read more here about selling your business to an employee.
Experienced operators can also be suitable acquirers. These are individuals who have the necessary experience and skill to sustain and grow your business. They are sometimes able to take more financial risk than your employees but typically can afford less risk than a financial buyer. In many cases, your business will do best in the hands of this type of buyer. Structuring a deal with these buyers can be tricky because they cannot afford to bear as much financial risk as a true financial buyer. Therefore, some creative structuring is necessary. Here again, protecting the seller from the pitfalls that exist when selling to a party unable to take large financial risks requires specialized skill.
- Thinking about who your buyers might be will help you decide how to present your business and which parts of your business to improve in preparation for a sale. For example, most buyers fitting the first two types prefer businesses with a management team that will remain in place post closing.
- You can solicit offers from all four types of buyers. Although the offers that different buyer types present will vary vastly, a good advisor can enable you to assess offers on an apples-to-apples basis.