When considering the sale of your company an important consideration is : “Which type of buyer will be right for me”? To achieve the best possible outcome, an owner must select the buyer or investor most complementary for his personal goals and his company.
Buyer types are best classified into three basic types of buyers/investors: 1. Individuals; 2. Strategic Investors; and 3. Financial buyers, such as Private Equity Groups. Below we list some characteristics of each to help you determine the right fit.
- Often a high net worth individual looking to “buy a job”.
- Usually retains existing management except for CEO and/or absentee owners.
- Consider smaller transactions that usually falls below the radar of strategic and private equity buyers.
- Often replace owners desiring to leave the business.
- May be the only liquidity option for companies not big enough for strategic or private equity investors.
- May be direct competitors looking to expand market share or obtain proprietary advantages.
- May have complementary products or services that share common distribution channels or customers.
- May represent high valuations, reflecting anticipated increases in revenues, savings from operation consolidation or other synergistic benefits.
- Often expect to buy 100% of a company, and seller has no opportunity for equity appreciation.
- Are preferred by some owners seeking quick transition as the buyer can replace with another operator.
- Consider companies of almost any size, but prefer larger deals.
- More likely to relocate the business and/or eliminate loyal employees.
Financial, or Private Equity Groups (PEGS):
- Provide funding to retire inactive shareholders, finance a generational transfer, or facilitate a management buyout.
- Often use the Financial Recapitalization as their favored investment tool. (In trade for company stock or assets the owner receives immediate liquidity. Usually the owner and PEG both want the owner to retain a portion of equity to sustain ongoing interest and future appreciation.)
- Customize the best transaction with flexible deal structures.
- Consider themselves partners with owners.
- Often support growth then sell the company within seven years. (The sale normally goes unnoticed by the public yet results in another equity payday for key management).
- Avoid the day-to-day operations of a business but do intervene if the company falls off track
- Provide a valuable advisory and sounding-board role to the owner or management team
- Provide additional growth capital along with strategic and M&A assessments.
For more information on your ideal buyer type, please contact us.