Many people hesitate when contemplating the sale of their company. Without first hand experience, many business owners buy into numerous myths or misconceptions related to selling a company. Consider some of the more well known myths and their corresponding clarifications.
Jobs Are Jeopardized
The most common belief when selling a company is that the jobs of employees will be lost under the new employer. This is far from the truth. Financial and strategic buyers, in fact, do not like to disturb the inner workings of a company at all. Fiddling with a company will absorb resources and substituting a large employee force is not an easy option. Furthermore, a company’s existing staff is experienced in working in the various sections of the business. Buyers are unlikely to tamper with an experienced staff is and see them as a bonus rather than a liability. Therefore, jobs of the current employees of the target company are generally secure. The one exception is mediocre employees who may find that they need to pick up the pace to ensure longevity.
All or Nothing
Many business owners believe that need to sell all of their company or none at all. In reality, there are numerous ways to exit a company and one may decide to choose between any of them. The seller could opt for an outright sale, plan a merger, decide to go public or even sell part of the company. With such varied options available, it is imperative to be certain which exit form is most suitable to the seller. For this purpose, the seller must analyze the reason for the exit and then, in consultation with their advisor, decide upon the most appropriate course of action.
Public Knowledge
Most entrepreneurs who decide to sell their companies fear that the sale shall be public knowledge. In reality, the seller has extensive control of who receives confidential information. Most investment banks go to great lengths to keep the sale of a company under cover. The key is a strong confidentiality agreement - one that does not unduly hamper the buyer, but one that does protect the seller’s interests. The most common mistake occurs when a seller handles a transaction himself or herself. The minute a seller talks to a buyer and says his company may be for sale is the minute it becomes public knowledge. On the other hand, when an investment banker is in the loop they are able to provide blind executive summaries that protect the identity of the seller.
Selling a Company Is Simply a Matter of Finding the Right Buyer
Selling a company is not an easy job. Most who attempt it on their own experience a rude awakening. Managing a transaction is a complicated process and finding the right buyer is simply one part of it. Researching the universe of prospects, assembling the deal book, conducting the marketing outreach and managing the due diligence process are all areas that require detailed and professional attention.
Any Buyer Will Do
When seeking an exit, many sellers believe any buyer will be suitable. Price is not the only driving force in a deal. Therefore, just any buyer is not suitable for any seller. The first step is reaching clarity on one's objectives. If you want to be satisfied post closing, you need to find buyers that are in alignment with your desires. The more buyers you have to deal with, the greater likelihood the right buyer will come to the surface.
Even more myths concerning the sale of a business exist, but these are the most prevalent. Educating yourself on them and avoiding all misconceptions will enable you to make a sound decision concerning the sale of your business.
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, email him or visit www.vercoradvisor.com.
Showing posts with label how to sell a business. Show all posts
Showing posts with label how to sell a business. Show all posts
Monday, December 17, 2007
Wednesday, November 21, 2007
Finding the Right Buyer for Your Business
Selling a business is a time-consuming task. From preparing the business for the sale to finding the right professionals to assist you through the process, there are many options to consider and choices to make. One important consideration is selecting the right buyer for your company.When making such a choice, it is important to understand the different types of buyers and know what issues each type brings to the table.
Financial Buyers
One of the most common business buyers, a financial buyer can be an individual or investment group who purchases companies with the intent of exiting them within a few years. For the financial business buyer, the most important aspect of the sale is the return on investment; they want to make the most amount of money with the least amount of invested capital. The financial buyer usually tries to obtain financing on a significant portion of the purchase price. Often, these buyers will not pay based on projections, and they are unlikely to offer top dollar for your business relative to a strategic buyer.
Financial buyers are typically not interested in being involved in the daily operations of the business, so they will thoroughly analyze financial statements and assets to make sure your company is well managed. This type of buyer may be best for the business owner who has capable management in place or is in a situation where the current business owner is willing to continue to work in a management role for a period of time following the sale.
Strategic Buyer
Strategic buyers are most commonly companies who obtain other businesses that harmonize with their own. The objective for the strategic buyer is to find other companies that would greatly increase their market share, add additional synergy to their business, or eliminate competition. Of particular interest to strategic buyers are competing companies or similar complementary businesses from other geographic regions. A primary goal is to acquire a company that will fit well into their own.
Industry Consolidators
Although problematic industry consolidations exist, as seen through companies such as Enron, the industry consolidator may still be a good choice for some people selling a business. An industry consolidator typically focuses on highly fragmented industries with companies similar in type who are generally relatively small. By “rolling up” these companies into one larger company they create the potential for higher valuations. One key ingredient is that the seller of the smaller company rarely receives cash at closing rather they receive stock in the larger entity being created through the roll up.
Individual Buyers
The individual buyer umbrella covers a number of different types of buyers including company insiders, international buyers, and displaced executives. A more important classification relates to the individual buyer’s motivation – whether they are buying a job or a company. Generally, the individual buyers looking to buy a job have minimal financial resources and are focused on purchasing a small main street company. Those buyers with substantial financial resources and operating experience will are looking to buy a middle market company.
Insiders who may be family, friends or employees know the business and likely have a personal interest in seeing the business succeed may be willing to pay more for the company than other types of buyers. On the flip side they rarely have the resources to provide substantial cash at closing which means a large portion of the deal will be deferred.
There are many combinations of the various buyer categories. The more clarity you have regarding the type of buyer you are dealing with and their motivations, the more likely you are to avoid wasting time and resources dealing with the wrong buyer. Regardless of the type of buyer you choose to deal with, it is advantageous to deal with multiple buyers at the same time.
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, email him or visit www.vercoradvisor.com.
Financial Buyers
One of the most common business buyers, a financial buyer can be an individual or investment group who purchases companies with the intent of exiting them within a few years. For the financial business buyer, the most important aspect of the sale is the return on investment; they want to make the most amount of money with the least amount of invested capital. The financial buyer usually tries to obtain financing on a significant portion of the purchase price. Often, these buyers will not pay based on projections, and they are unlikely to offer top dollar for your business relative to a strategic buyer.
Financial buyers are typically not interested in being involved in the daily operations of the business, so they will thoroughly analyze financial statements and assets to make sure your company is well managed. This type of buyer may be best for the business owner who has capable management in place or is in a situation where the current business owner is willing to continue to work in a management role for a period of time following the sale.
Strategic Buyer
Strategic buyers are most commonly companies who obtain other businesses that harmonize with their own. The objective for the strategic buyer is to find other companies that would greatly increase their market share, add additional synergy to their business, or eliminate competition. Of particular interest to strategic buyers are competing companies or similar complementary businesses from other geographic regions. A primary goal is to acquire a company that will fit well into their own.
Industry Consolidators
Although problematic industry consolidations exist, as seen through companies such as Enron, the industry consolidator may still be a good choice for some people selling a business. An industry consolidator typically focuses on highly fragmented industries with companies similar in type who are generally relatively small. By “rolling up” these companies into one larger company they create the potential for higher valuations. One key ingredient is that the seller of the smaller company rarely receives cash at closing rather they receive stock in the larger entity being created through the roll up.
Individual Buyers
The individual buyer umbrella covers a number of different types of buyers including company insiders, international buyers, and displaced executives. A more important classification relates to the individual buyer’s motivation – whether they are buying a job or a company. Generally, the individual buyers looking to buy a job have minimal financial resources and are focused on purchasing a small main street company. Those buyers with substantial financial resources and operating experience will are looking to buy a middle market company.
Insiders who may be family, friends or employees know the business and likely have a personal interest in seeing the business succeed may be willing to pay more for the company than other types of buyers. On the flip side they rarely have the resources to provide substantial cash at closing which means a large portion of the deal will be deferred.
There are many combinations of the various buyer categories. The more clarity you have regarding the type of buyer you are dealing with and their motivations, the more likely you are to avoid wasting time and resources dealing with the wrong buyer. Regardless of the type of buyer you choose to deal with, it is advantageous to deal with multiple buyers at the same time.
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, email him or visit www.vercoradvisor.com.
Subscribe to:
Posts (Atom)
Posts
