There are many buyer types that may be interested in your business. Your business’ industry, sales channels, products, services, level of EBITDA, size, management team, and location determine what type of buyers would be interested in buying your business. When going to market, it is best to go after several buyer types to find a buyer that may be a good fit with an attractive value. (More)
A person or single-member entity is typically looking for a job plus an investment. Individuals often draw from their down payment funds from investments, retirement accounts, or an investor, and then rely on their bank for financing the remainder of the purchase price. Individuals make good owner operators and tend to be more open to carrying on your legacy. Additionally, individuals will likely pay more for your business than an employee, but less than other buyer types.
Strategic buyers could include a competitor, supplier, a company in a similar industry, or an organization wishing to purchase your business for reasons that strengthen their core strategy. Selling to a strategic buyer can garner a higher selling price, however, they frequently consolidate portions of purchased companies that overlap with their own. In these cases, your brand, real estate, and employees may or may not be part of the sale.
Private Equity Groups are typically considering businesses as platforms for expansion or growth within an existing platform or field. In early 2020, Private Equity Groups reported over three trillion dollars from investors seeking opportunities; resources larger/deeper than other buyer types which allows Private Equity Groups to offer a higher purchase price than most and accelerate the growth of your company after the purchase. They will, however, typically sell your business in three to seven years, which may impact your company and/or legacy long-term.
If you’re looking for a way to sell your business and continue to be a part of it, most Private Equity Groups offer programs that you roll 10-80% of the purchase price of your business into the new platform. If you like, you may continue managing your company or you can transition out of the leadership role in one to two years. With your new financial partners, you can grow your company with additional financial and operational resources with greatly reduce personal risk. When the Group exits their investment in your company, you may have a “second bite of the apple” with a goal to receive 2.5-3.5 times your investment that you rolled into the new company. Additionally, you may have an opportunity for a “third or fourth bite of the apple” as well. Click hear to hear what Andy Remus has to say about selling his company to Pfingsten Partners.
A Family Office is similar to a Private Equity Group that manages investments in businesses for a high net worth family. Family Offices have flexible investment horizons, meaning they can afford to hold a business for much longer periods of time than Private Equity Groups, allowing them to fulfill previously established strategies and plans that could span generations. Family Offices are able to make decisions rapidly and they are typically not interested in taking over a company. Good management teams are expected to continue the company’s growth strategies and likely will maintain the culture that you established. Perhaps most exciting, Family Office purchases are often made in cash.
The search fund is a business buying model by which aspiring CEO’s find established Investors (individuals, Private Equity Groups, Family Offices, etc.) to provide financial backing and mentoring needed to purchase and grow an established business. A favorite approach for new MBA’s looking for an opportunity to grow a business, the search fund is an attractive option for sellers who are eager to sell but are equally interested in see their company’s legacy continue.
Holding companies are organizations that are in the business of buying shares in other businesses and benefitting from their growth and profitability. Regardless of whether or not they have established synergies with your business, they will assume board or other leadership positions within your organization. The organization will, meanwhile, be accountable to the holding company.
Your employees can be an excellent choice to sell your business to, whether it is to one key employee, a small group, or to all of your employees. They are the accumulation of your years of efforts in building your company. The price they are able to pay for the business may be lower than expected from other buyer types. They will, however, be the most likely candidates for maintaining your company’s legacy.
Additionally, a larger business can be sold to the employees through an Employee Stock Ownership Program (ESOP), which can generate substantial tax savings.
In many European countries very, few companies are sold outside of a succession plan within the family that owns the business and the family is focused on building the company for generations to come. As a third-generation business owner, at one time, I believe that there was a lot more business succession within families than there is today. Unfortunately, in some cases children do not want the burden of owning the family business, they may prefer to be the beneficiary of their parents estate. Possibly they may not have the skills or may have conflict with in the family. Today companies with great performance can be sold for much more than the family member may be able to afford. A popular option can be for the family to sell a minority or majority of the company to a Private Equity Group, Family Office or Holding Company. This can provide the current generation a liquidity event and the next generation of your family the financial and business resources to grow the company.