You may be thinking about retirement, reducing your responsibilities or simply feeling that the business has reached the point where someone else should take it forward. Whatever the motivation, once selling becomes a serious consideration, one question quickly becomes important: who might actually buy it and what is the best way of finding the right buyer?
For owners of established businesses, there may be several potential routes. Understanding the difference between strategic and financial buyers, and how each might structure a deal, can help you decide what a successful exit really looks like for you.
Strategic Buyers
A strategic buyer will typically be another company that sees an opportunity in acquiring your business.
They might want access to your customers, people, expertise, technology, geographic reach or market position. They may be looking to enter a new sector, remove a competitor or add complementary products and services to their existing business.
Because of these potential synergies, a strategic buyer may sometimes be prepared to attribute greater value to a business than its standalone financial performance would suggest.
But valuation is only part of the equation. A strategic acquisition can also mean significant change. Your business may become part of a larger organisation, your trading name or brand could eventually change and decisions about employees, locations and operations may move elsewhere.
For an owner who has spent years shaping a business and its culture, understanding what happens after the transaction can matter almost as much as the price.
Financial Buyers
Financial buyers such as private equity firms, investment companies or family offices, approach acquisitions differently.
Rather than absorbing the business into another trading company, they are generally investing because they see the potential to grow its value.
That can make them particularly interested in businesses with strong management teams, recurring or predictable revenues, healthy margins and clear opportunities for further growth.
A financial buyer may also want the existing owner or management team to remain involved for a period following the transaction. Depending on your ambitions, this could provide an opportunity to realise some of the value you have created today while retaining an interest in the next stage of the business to realise future value.
However, for an owner who wants a completely clean break, that may be less attractive.
The Headline Price Isn’t the Whole Deal
Once offers arrive, it can be tempting to focus on one number: the valuation. But two offers carrying the same headline figure can produce very different outcomes.
How much is payable in cash on completion? Is part of the consideration deferred? Is there an earn-out dependent on future performance? Will you retain equity? Are you expected to remain with the business – and for how long?
The structure of the transaction determines not only how much you receive, but when you receive it and what needs to happen before you do.
An apparently higher offer containing significant deferred or performance-related consideration could ultimately be less attractive to an owner than a lower offer providing greater certainty at completion.
What Do You Want from the Sale?
Before approaching potential buyers, it helps to be clear about your own priorities.
Perhaps maximising value is paramount. Perhaps you want to protect the team that helped you build the company. You might want to step away immediately or remain involved for several years. You may care deeply about retaining the company’s identity, or you may simply feel ready to hand over the keys.
There isn’t one universally ‘right’ buyer or deal structure.
The objective is to create competitive interest from credible buyers, understand what each proposal really means and negotiate a structure that reflects both the value of the business and what you want your life to look like afterwards.
For many owners, this will be the largest transaction they ever undertake and possibly the most important decision. And unlike the deals you have negotiated throughout your career, you will probably only sell your business once.
Having experienced advisers around you can help you look beyond the headline number, understand the implications of different offers and negotiate from a position of strength.
Thinking About Selling Your Business?
The MGroup Corporate Finance works with business owners to prepare for exit, identify and approach potential buyers, assess offers and structure transactions around their commercial and personal objectives.
If selling is beginning to feel less like a distant possibility and more like a genuine next step, talk to our team about what your options could look like. Partner, Geoff Pinder, is ready to help you get started and can tell you about our Business Exit Review, email g.pinder@themgroup.co.uk