Often when business owners decide to sell their business, the first type of buyer they consider are their competitors. This makes sense since competitors already know the business and industry, and they often have the most to gain from the purchase. However, competitors are not your only choice and too often they are not the best choice.
We have found that competitors can be the least flexible, pay the lowest prices, and offer the lowest value. This is especially true if they think they are your only option. If you are considering selling your business, we suggest that you look beyond your direct competitors and consider other viable buyers.
Here are a few options to explore:
Financial Buyers – These buyers invest in a variety of industries. They include Private Equity Groups (PEGs), family offices, investor groups, small PEGs, and investor/operator groups.
There are more than 2,000 PEGs in the United States that are well funded, very active, and frequently offer more flexibility and options for sellers. For example: some PEGs prefer buying companies only if top management stays and while others are willing or prefer bringing in their own leadership. Family Offices are similar to PEGs but often hold onto a business for a longer period of time. Where the typical PEG might hold a business for five years before selling again, family offices may hold a business ten years or indefinitely.
In addition to the large well-known and well-funded private equity groups, there is a host of small equity groups. Some of these smaller, lesser-known PEGs and investor groups are well-funded and some are not. But even those groups without committed capital can be good buyers if they have access to funding. One of the advantages of these smaller groups is that they may be open to the purchase of smaller and/or less-than-perfect businesses.
Investor/Operator groups usually focus on one industry and have specific industry expertise. Many times, these groups are formed by industry executives backed by small private equity or other funding. In situations where the owners want to leave relatively quickly and there is no inside management to move up, these buyers can provide a good option.
Strategic Buyers – Strategic buyers come from the same or a related industry. They include the direct competitors mentioned above, but there are other types of strategic buyers. These can include suppliers or customers, but more likely they will be companies in another geography, or companies in related or similar industries. Strategic Buyers often come from industries you might never consider. For example: A company that manufactures products for the prison industry might be seeing a decrease in the number of new prisons being built, so they look to apply their expertise and capabilities in other industries – such as security. Now that the economy is strong, strategic buyers have become very active because they have funds and they are looking to enhance their growth rates thru acquisition.
Identifying the best buyer often depends on the particular situation of a business, and the goals of the owners. For instance, financial and strategic non-competitors are more likely than a competitor to leave management and staff intact. Fortunately, there are many types of investors that are looking to purchase businesses who are capable of providing good offers and terms.
Business owners should consider all of their options to get the most from the sale of their business. Quality businesses that go to market and develop a wide buyer pool usually have multiple offers, and those offers can vary significantly – both in price and terms. Most of those business owners will conclude transactions that exceed what they would have gotten if they only addressed direct competitors. It pays to look at all of your buyer options.