In this article you will learn how to sell a business to the best buyer. Financial buyers purchase your company’s future stream of profits, so their evaluation of your business’s worth focuses on your profitability-and the likelihood of those profits flowing into the future. Since buying your company is probably riskier than putting money in government bonds, a financial buyer will demand a higher return on investment and will therefore usually make an offer that is within the normal range of multiples being paid for businesses like yours.
By contrast, a strategic buyer develops an offer by estimating the value of your business from a synergies perspective. The review and analysis that a strategic buyer does begins with imagining what would happen if your company were grafted onto it’s platform.
Companies make strategic acquisitions for many reasons, but here are three key ones:
1. A company might make a strategic acquisition to pump new life into an aging cash-cow product.
2. A company with a large, under-utilized sales force could buy your business so that its salespeople would have another product to pull out of their bag.
3. Another reason companies make strategic acquisitions is to get access to a distribution channel. Often, gateway acquisitions happen when a company wants to enter a new geographic market with big cultural or language barriers and corresponding high costs of acquiring customers.
Additionally, acquirers (buyers) typically pay the most for businesses with the potential to grow.
How To Sell a Business To The Best Buyer From a Buyers Risk Vs Return Perspective?
The price a buyer (investor) is willing to pay for an asset relates to how risky he or she perceives the future stream of profits to be: the riskier the investment, the higher the return an investor will demand. Today, buyers (investors) can put their money into relatively safe bonds and get a few percentage points of return, or they can buy a balanced portfolio of big-company stocks and expect perhaps a seven or eight percent return over time.
But when buying a relatively risky business rather than a balanced portfolio, buyers (investors) will expect a much higher return on their money. It’s possible that a buyer (investor) may be seeking as much as 50 percent return for buying your business because he or she deems your business and the future stream of profits to be very risky.
Speak with one of our Advisors to learn how to sell a business to the best buyer.
By Brian S. Mazar, CBI, MBA