You’re mentally prepared and your advisor is on board. But what’s your target market?
Selling your business is like dating. To be successful, you need to be clear about what characterises Mr or Ms Right. Once you know, you can dress up your sales pitch to appeal to these buyers, advertise wherever they hang out and present your business in a way that attracts them.
Your business has a different value to different buyers. You want to attract the ones that can realise the most value as they will be more likely to meet your terms.
A common way for buyers to add value is through links with their existing businesses, especially when such links are exclusive. For example, many software developers offer a unique product but their businesses fail to grow because they lack the distribution network to maximise the potential market. These smaller companies are often attractive acquisitions for global software corporations because their products are a good fit and the corporation can apply the power of their international sales force to distribution.
Different types of buyers have different needs and expectations, so discuss these with your advisor. This will clarify the most likely type of buyer/s and will help you to present the business in a way that appeals to them.
It’s not all about money
The right buyer is, first and foremost, the one who will pay a fair price for the value of your business, including a share of the synergies to be enjoyed.
However, it’s important to be clear about your non-financial expectations too. Only you can decide what these are and prioritise them. In my experience, five common non-financial considerations are:
- Transition. The buyer’s needs around the handover period and whether you remain with the business afterwards in any capacity need to match yours.
- Continuing obligations. The undertakings that protect the buyer. For example, the extent and length of warranties and indemnities to the buyer, or a restraint of trade agreement.
- Funding. A buyer must have the money. This may take time to confirm, but lack of funds is a real time-waster.
- Timing. Perhaps their internal approval process is complex or their bank is slow – whatever the reason, you may have to forgo a buyer who cannot settle in time if you need to meet an inflexible end date.
- ‘Sleep soundly’ factors. You cannot expect to influence decisions about your business once someone else owns it. However, if there is something you could not live with, you must discuss it and, ideally, include it in the sale contract. One example is guaranteeing a job for a family member who is your employee.
As with all negotiations, you may have to compromise on one expectation to achieve your goals for the others.
Narrowing the search
Your buyer will be drawn from one of several potential buyer groups. Which are most likely to match your financial and non-financial expectations?
|Type of sale||Main driver for buyer|
|Trade sale: direct competitor||Cost/distribution/product synergies|
|Trade sale: indirect competitor||Growth and diversification|
|Private equity||Potential to increase efficiency and value|
|Management buyout||Participate in future profits and value|
|Family transition||Keep business in the family|
|Financial investor (active or silent)||Participate in future profits and value|
|Overseas purchase||Expansion into Australia|
|Sharemarket float (IPO)||Growth in investment or dividend stream|
Targeting your perfect match
The process for uncovering a higher value buyer is multi-faceted. One important activity is preparing your business for sale, which is covered in Part 5 of this series. Other factors that will play a part are:
- Having prequalified prospects: Discreet approaches to synergistic companies are the ideal way to find the right buyer. A good advisor can do the necessary research and may already have a database of likely candidates.
- Effective marketing: Emphasise potential synergies inthe information memorandum, advertisements and other materials. Take care not to reveal your business’s name or location in public; only prequalified buyers can have the details, and even that requires careful management. Otherwise your business may suffer as rumours take hold, especially if the sale falls through.
- Good timing: Carefully selecting the sale timing may increase chances of attracting your ideal buyer. Economic, seasonal and political factors (e.g. an impending election) are all important.
Being so strategic may seem unnecessarily time-consuming. But a targeted sales campaign could make all the difference by identifying the right buyer. The ideal buyer is someone prepared to meet your financial and non-financial terms because they understand the value of your business to them and don’t want to miss out.
This is part of a series of expert SME business commentary provided by Moore Stephens. If you wish to receive the FREE eBook click here to register.
The contents of this article are generic in nature and do not represent advice that can be relied upon. You should seek professional advice based on your own personal circumstances. The author and any other parties involved in the preparation or distribution of this article expressly disclaim any form of liability to any person in respect of this article and any consequences arising from its use by any person in reliance in whole or any part of the contents of this article.
About the Author
Alan Max is Director – Corporate Finance, Moore Stephens (www.moorestephens.com.au), accountants and advisors who provide personalised and commercially astute accounting, tax and business advisory services. Drawing on over 20 years’ experience, Alan advises SMEs and smaller listed companies on exit planning, execution and valuation considerations. He can be contacted on (02) 8236 7700 or [email protected]