Recently I’ve had several interesting meetings with former clients who are considering selling their businesses over the next several years. I’ve been involved in mergers and acquisitions for many small to mid-market businesses in my career. Many of the organizations I’ve worked with have enjoyed tremendous growth by acquiring businesses that complement their core capabilities. They have ranged in annual sales between five million and several hundred million dollars. Many of these deals have helped take their acquiring organizations to the next level.
In almost all of the deals I’ve been involved in, we were a strategic buyer of the business we were acquiring. For many of the privately held businesses I work with I find it is more attractive to sell to a strategic buyer. A strategic buyer means that the acquiring organization understands your business and pays more because the natural synergies between organizations allows them to achieve more profitable growth through cost reductions, increased marketing leverage, and increased sales and profits. For the business seller, it means you have to be better prepared than you might be for a financial buyer. Do it right and it can mean a premium of between 5-15% of the sales price to the seller of the business. In a future blog, we will discuss financial buyers and what’s right for your business.
So why should a privately held business owner look for a strategic buyer? In my opinion there are three key reasons to look for a strategic buyer for your organization. We’ll talk in future blogs about how to build an organization that strategic buyers want to buy.
You want the highest price possible. You’ve invested time, your life, and money in the business and you want the greatest return on your efforts. For many emerging technology businesses, your ideas are almost as important as your results. Knowing how to leverage your idea into cash can best be done with people who understand your industry and your strategy.
You want a high price, but have other concerns as well. You are trying to optimize your payoff while also assuring that the people in your business are taken care of. Selling a business is a negotiation and to get what you want you may need to make a fair exchange for the things you want to achieve through the sales process. To make this work successfully you must be clear about both your concerns and your expectations.
You want to cash out, but you want to remain in the organization for a few years. For many entrepreneurs they are the most visible person to key clients and partners. They need to help the acquiring organization retain their employees, key partners, and clients. Having the former owner/CEO of the business share the reasons for the acquisition goes a long way to remove all stakeholders’ fears and uncertainty. The key to using this strategy is to put definite timelines in place and begin doing what is required to make it a smooth transition for everyone involved. Do not leave the details undone. Make sure all of these agreements are written out and signed by both parties.
If you would like to know more about what buyers look for in a business you can read more at How to Make Your Business Attractive to Buyers http://shar.es/epiub at Developing Serving Leaders. This is my leadership blog for purpose driven entrepreneurs and mid-market CEOs. I think this blog will get you thinking about what makes an organization a good growth opportunity for strategic and financial buyers.
See you on Mobile Monday next week.