strategic buyer meeting

Selling Your Business to Strategic Buyer

Entrepreneurs are always interested to explore new opportunities. After scaling a business an entrepreneur may want to exit and start something new. To achieve that goal the business owner may want to consider selling to a strategic buyer. A strategic buyer is a business that is looking to acquire a target company operating in the same industry.

Strategic buyers are looking for mergers and acquisitions to explore new synergies, get access to innovations and technologies or enter a new market or country. Selling your business to a strategic buyer can bring industry knowledge and cashflow necessary for your business to grow further.

If you’re interested to sell your business to a strategic buyer, here are a few things to consider.

1) Find out about your strategic buyer’s goals

When it comes to understanding the strategic buyer, you should look at the company’s structure, history and financial performance. This will give you an idea if it’s a well-performing company. Along with that identify what’s the goal of the strategic buyer. Do they want to buy your business to access the technology you have, expand into new geographies, or capture your customers?

Often, it’s a combination of many things. Getting an idea about their goals will let you decide if it aligns with your intention to sell the business.

2) Identify what type of strategic buyer they are

The next thing you need to understand is whether the strategic buyer wants to explore a synergy or eliminate competition. Buyers looking for synergies will view your business as accretive. With an assumed accretive deal, the buyer may also give greater consideration employee retention.  The buyer will not only want the business, but the team that comes it.

The type of buyers looking to eliminate competition will only be interested in capturing your customers. They already have a team in place and will not hesitate to dissolve your company’s management or dismiss employees.

As a business owner who has built the company, you would want a buyer who is looking to make synergy and take care of your team. All this depends on what is your larger goal.

3) Find the buyer’s size and post-acquisition plan

To make sure your goal aligns with the buyer’s goals, ask them questions as to pertaining to the intention for buying the business. Don’t hesitate to ask how many companies they’ve acquired or how these companies are performing.

If you come across first-time buyers, ask them how they plan to take your company forward after acquiring it. Also, figure out the size of the seller. It makes sense to sell your business to a large company that has the expertise and resources to scale your business.

Asking questions will position you as an expert and let the buyer know you are aware of how businesses function. Showing the buyer that you are a “sophisticated” seller will help you to maintain leverage during the price negotiation phase of the sale.

4) Check your timing

Finding a great buyer doesn’t mean you should immediately sell your company. You need to make sure you’re ready to retire from the venture or if you want to continue. Some strategic acquisitions will have the arrangement to keep you in the company and let you handle the day-to-day operations. In this case, you could sign a short-term agreement to keep working with the company and gradually retire.

5) Keep exploring more opportunities

Creating an auction for the sale of your business always results in a better purchase price for your company.  Try to identify several potential buyers like private equity firms who might want to buy your business. A boutique or small investment bank or advisor is always helpful at this stage.  Always take your time to evaluate different proposals and consider the best deal for you. Usually, business sales are executed at a multiple of EBITDA, with strategic buyers potentially willing to pay a premium.

While many get an LOI in preparation for due diligence, a IOI (indication of interest letter) allows you to get purchase price ranges.  This helps avoid disclosing information about your business to tire kickers. Some businesses might be looking to extract information and may have no interest in buying.

If you think you’ve found the right buyer who aligns with your goals, you can go forward and sell the business. You can also contact a professional business consultant like us to help you in the process of finding a strategic buyer.