Not every buyer protects your company’s heritage – choose wisely

When your shareholders decided that the right time has come to sell the company, it is very easy to say: “great, let’s sell it to the buyer with the highest valuation.”

But that may be a mistake. There are several other aspects that aim to seek out the “right” buyer for your company and a specific situation. This article will enable you to rethink different considering points and provide some warnings about things it is advisable to concentrate to to avoid known potential traps when it comes to selecting the right buyer for your company.

Various varieties of buyers in Normal sales process

When corporations are put up for sale, this is often done with a business broker, which is supervising your company with many potential buyers at the same time. Let’s say that in the normal trial they will reach 200 goal buyers, get 20 of them to get involved in some form of dialogue or preliminary diligence and obtain 5 of them to send a letter of the intended purchase of the company.

The query of this post is: which of the five buyers is the one you need to choose? Spoiler warning: It will not be one with the highest price.

Most buyers might be divided into one of the three categories: (i) strategic buyers that are corporations that wish to get to your industry or increase their current market share in your space; (ii) financial buyers who are often private equity corporations or family offices who wish to buy flow corporations as an investment strategy; and (iii) individual managerial staff or entrepreneurs who are looking for a company for them to have and act (they might be individual directors or sponsors without funds supported by private equity funds, creating recent executive roles).

Let’s talk about the typical benefits and disadvantages of those three various kinds of buyers.

Strategic buyer

Advantages: Strategic buyers are often the most reliable to shut. They talk over with you because they see something in your company that can assist them with their company. For this reason, they are often most willing to pay the highest valuations. They are often wealthy in money, which implies that many do not need external loans to conclude a contract, depending on the size of the transaction. They do not necessarily need your management team if other managers can enter and run a company.

Defects: Strategic buyers are often the slowest movement and have the longest closing schedule because many different decision -makers are involved. So, if the speed is essential to you, think twice about the descent of this path, because the means of due diligence and development of documents might be the most burdensome.

Financial buyer

Advantages: Financial buyers can move quite quickly, because they typically sit on a large pile of money they need to take a position.

Defects: They will often wish to increase banking debt to 50% of the purchase price to raised disseminate their capital investment potential for other corporations. And banks like to take a position in corporations over USD 3 million in EBITDA, which will not be you.

They will wish to return to the management, versus running the company independently, so make sure you have a plan of a management team for them, which can include employment and training before sales. They are often the most aggressive in terms of negotiating the absolute best price for themselves to maximise Roi for their investors.

Individual buyers

Advantages: Usually these are the least sophisticated buyers and may require the slightest due diligence or the least “rims so that you can go” to maneuver on.

Defects: They often require bank financing for a large a part of the transaction (as much as 90% with loans supported by the SBA), so the process might be slowed all the way down to secure the capital they need. Because bank loans often require personal guarantees from the buyer, they are often the most upset by “making a mistake” and can easily leave the transaction if they do not wish to take additional personal risk.

Other topics that needs to be taken into account when selecting a buyer

In addition to the style of buyer, you need to assess these additional considerations to find out whether or not they are the right buyer of your company or not.

• Their repute. If you wish to protect your heritage, you do not wish to sell your company to the buyer who will harm the company’s repute in the future.
• Their plan for your company. If you care about how the company will probably be run after sales, you do not wish to sell to anyone who does not provide this vision.
• Their plan for your team of employees. If you care about the honest treatment of employees after sales, you do not wish to sell someone who will decelerate your team.
• Their possibilities of closing. Sales of the buyer with a 75% likelihood of closing is much higher than selling a person with a 25% likelihood of closing, even if it means a cheaper price.
• Their speed to shut. Sales of an experienced buyer who knows the way to quickly undergo a process is preferred from selling an inexperienced buyer who could drag this process for months and still not reach the finish line.
• Their personal matching to your culture. Make sure that there will probably be no personality or other problems with the buyer in terms of how they may mix with your current culture and team.
• How it is financed. The offer for all couplings is much higher than an offer requiring any banknotes, earnings or financing of banks of other corporations. Duh!
• How protected their financing is? If they require external banking debt or capital investors to finance the transaction, have these obligations have already been secured or is there a risk that they may lose their financing? Even committed financing can disintegrate, so watch out here.
• Market conditions. If the economy or financial markets are perceived as uncertain, buyers, capital banks and investors will probably be nervous, which is able to hurt your possibilities of selling the company. Find buyers with a long -term vision who feel comfortable in all market conditions.

As you’ll be able to see, there is much more to contemplate than maximizing the valuation when selecting the right buyer for your company. Do not focus on obtaining the highest sales price that you simply potentially “overthrew the apple stroller” without taking into account all the above problems. Good luck!