Recently, a topic has been on several different blogs discussing whether, when your business is being sold, you should go to a small number of buyers, or a broad buyer list. Based on the title of this blog, you can probably figure out my point of view.
Often when I’m talking to a business owner who is considering selling their business, they tell me, “I know my 5 closest competitors, and they’re the ones most likely to buy my business.” Here are the top 3 reasons why I think it’s important to think outside the box when creating a buyer list.
- Your top competitors may not be in the market for an acquisition at the same time that you desire to sell your business. They may have just completed an acquisition so now they need time to digest it. Their sources of financing may be tapped out. Their performance may be terrible, so their bank or their Board may not be willing to support an acquisition right now.
- More buyers at the beginning of the process generally mean there are more bidders later in the process. A competitive bidding situation leads to a higher price for the seller.A few years ago, I sold a small company in the healthcare sector. Based on comparable M&A transactions, we expected the company to sell for about $8 to $10 million dollars. Our ability to create a competitive situation resulted in a final purchase price of $13 million, more than 30% higher than expected.
- A buyer who is not a direct competitor may pay more for your business. Companies outside your industry may want access to your customer base, your product and service offerings or your geographic location for strategic reasons — and be willing to pay higher multiples than your competitors. Additionally, someone from outside the industry may not know the “standard multiples” in the industry, leading them to be willing to pay more.
When we are putting together a buyer list for our clients, we generally think about it in terms of a series of concentric circles, with the most obvious buyers in the center, but companies in related industries, up or down the value chain, in the outer circles. That is often where we can find the highest value for our clients. For a more in depth understanding of our thinking, check out this Viewpoint written by my colleague, Jamie Grant, titled “Beyond The Usual Suspects: Why Buyers Outside Your Industry May Pay….”
If you’d like a conversation about who these outside the box buyers might be for your business, drop me a line.
Originally posted by Laura Kevghas on July 10, 2014 at 9:54am