Which kind of buyer suits me?
When medium-sized entrepreneurs think about external company succession, they often already have clear ideas about which type of buyer is a particularly good fit for the company. It is worthwhile to think further, beyond the first obvious solutions, and to approach the search for buyers without reservations and, above all, in a structured manner.
Often the entrepreneur is looking for a person who is very similar to him – his image, so to speak, only 25 years younger. Also, a competitor is often considered. Although – the thought that a competitor, which one has struggled with for years, should buy one’s own company, could be uncomfortable.
It is worthwhile to think further, beyond the first obvious solutions, and to approach the search for buyers without reservations and, above all, in a structured manner.
When we think along with an entrepreneur and consider who would benefit the most from buying your company, we differentiate between different groups of buyers with different goals, interests and approaches.
The interest of a strategic buyer is based on the company fitting well into the buyer’s business strategy. Of course, this could be a competitor but also an important customer, a supplier or someone in a related industry who has an interest in technological know-how. More and more often, we also see acquiring foreign parties interested in geographically expanding market and customer access.
Strategic buyers are often a good fit with medium size entrepreneurs because of similar approaches and style, more quickly establishing trust. In addition, this type of buyer can price the strategic synergies between buyer and seller into its purchase price.
However, many strategic prospects, especially if they are medium size companies, are not so familiar with buying or selling a company. The managing director usually handles both the acquisition and the day-to-day operations, and needs support and advice.
For a financial investor, the most important goal is to invest capital at acceptable returns. An important distinction is whether it is their own capital or from third parties. Whereas in the past the field of financial investors was mainly limited to private equity companies, today one can find a broad mix of investors such as family offices managing family assets, private wealth investors managing their own assets and selected asset & fund managers.
If small & medium size entrepreneurs are still skeptical towards financial investors, we can assist in bridging the potential trust gap. For example, individual investors differ greatly according to whether they invest their own capital, how long they keep their capital invested and with what return expectations, and how entrepreneurial they are.
Since financial investors often look at a variety of investment opportunities, they have structured processes to follow. Investments are made according to selected criteria and standard procedures have been established for the various stages of an investment process. This often makes investors very professional, reliable and fast movers.
Management Buy-In (MBI) / Management Buy-Out – Candidate (MBO)
Behind this jargon are individuals who have management experience and for whom the acquisition of a company is a personal entrepreneurial challenge. This can be your own executive (MBO) or someone from outside who wants to become self-employed (MBI).
For many people, it is the first step into entrepreneurship. The motivation and long-term interest are correspondingly high. For many small & medium size sellers, such individuals are welcome partners because they often proceed pragmatically with regard to the evaluation of the company and usually have much in common with the seller.
The disadvantage of this group of buyers is not only that suitable individuals are difficult to identify, but also that they usually do not have enough funds for the transaction. Financing through a bank can be a lengthy and difficult process because the candidate himself may not have the required experience and the bank wants to dig deep into its financial & company analysis before deciding to invest or not. Not infrequently, the project of such interested parties fails because of this.
Procedure in the sales process
Before starting the sales process, it is important to carefully deal with the different groups of buyers and their interests. Only then the sale can run smoothly and successfully. Proactively anticipating and aligning the positioning of the company accordingly is part of careful preparation. This means that the company to be sold must be viewed from the buyer’s point of view. This not only increases the probability of sale, but often also leads to a better purchase price.
Wondering which group of buyers is the best fit ? Our experience shows a group targetting process, which evolves during the course of a sale process. Therefore, a good sale process involves addressing different groups of buyers. A structured sales process can be set up in such a way that the pros and cons of the individual buyer groups are dealt with in such a way that the entrepreneur can choose the solution that is best for him and for his company.
Do you want to sell your business and prepare well for it? Please do not hesitate to contact us.