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Mergers & Acquisitions: Buying a Business from the Buyers Perspective

What Buyers are Looking for When Buying a Business

  • Strong Profits / Cash Flow (the company is managing expenses)
  • Recurring Revenue Stream (loyal customers, sales contracts, growth markets)
  • Strong Management Team (2nd or 3rd in command can run the company)
  • Unique Products and Services (real differentiators, make vs. resell, IP)
  • Credibility (goodwill, reputation, customer satisfaction)

The house is in order (clean books, no lawsuits, records are organized, written procedures, premises are clean).
The management team is strong and runs the business. This is where a small business really increases in value.
The business is trending up and not projecting a hockey stick future.
The business is not overly dependent on the owner or any one person. The owner is not the top salesperson.
The business has a strategic growth plan. This has to come from the seller and have substance.
The company hires specialists and is specialized in one or more areas.
There is low hanging fruit that can potentially be converted into opportunities and value enhancers.
The company does not have one customer that accounts for more than 15% of total sales. A rule of thumb.
The company limits large capital expenditures (low capex).
The company has and meets regularly meet with an advisory board.
In summary, buyers buy companies with strong profits, good growth potential and talented employees.

How Buyers Think When Buying a Business

The will pay for the past, consider the present, but buy it for the future.
They will fall in love with the profit but not the product.
They want to buy a good business and make it a great business.
The ingredients are nothing without the recipe.

The Business Transfer Cycle is Heating Up

US Ten Year Transfer Cycle

Why should I use an M&A Advisor?

Buying or selling a business is one of the most important financial decisions you will make. An M&A Advisor has the training and expertise to guide you through the process in a comfortable and efficient manner. M&A Advisors are team players team players who will coordinate the efforts of your professional advisors, such as attorneys and accountants. They have handled many transactions and understand the complexities of selling and buying a business.

Why is seller financing so important to the sale of my business?

Conclusive date shows that a seller who asks for all cash receives 70% of their asking price, while sellers who accept terms receive an average 86% of their asking price. That’s a difference of 16%! In many cases, businesses that are asking for all cash just don’t sell. With reasonable terms, the chances of selling increase dramatically and the time period from engagement to sale greatly decreases. Most sellers are unaware of how much interest they can receive by financing the sale of their business. In some cases, it can greatly increase the amount received. And it tells the buyer that the seller has confidence in the continued success of the business.

What can I do during the sale process to ensure that I get the highest value?

Run your business as if you are planning to keep the business for years to come, push out all the stops to generate as much revenue growth as possible, and in turn keep profits growing. The process of selling your business can take six to nine months or longer, and during that period you need to ensure that your business is in a stronger financial position than ever, so you are in a position of strength during final negotiations. It is important that all prospective buyers retain the highest opinion of you and your business

Are competitors the best buyers?

Typically, competitors are not the best buyers. They already have much of your infrastructure and knowledge of the industry. They are less likely to pay a higher premium for skills or assets they already possess. More often than not, a competitor is not prepared to pay you the highest price on the best terms

Should I tell my managers of my intention to sell?

This is an individual decision that depends on your circumstances. At the same time, there is an optimum way to sell your business. Ideally, your managers are aware of your intention to sell. The buyer feels more comfortable if the management team has embraced your intention to sell. But the timing is a delicate decision and the way you present your intention to sell is very important. You may have reached a stage where you no longer want the responsibility or financial commitment of growing the business further. Your managers probably understand this and likely relish the idea of new growth prospects and development of the business by new owners.

When should I develop an exit strategy?

The sooner the better. The ideal time to develop an exit strategy for selling your business is when you start or purchase a business. You may find that puzzling, but a business is an investment of your time, your money, and your blood, sweat and tears. The end result is to have a gain on that investment. Industry statistics indicate that 85% of all business owners do not have a defined exit strategy although, on average, 75% of their net worth is tied up in their business.

Who might buy my company?

Financial buyers typically are looking to acquire your company and keep the existing management team in place. They will provide capital for growth and board-level support. Financial buyers typically have size ranges that they target, and are looking to acquire businesses with very strong profits and cash flow.

Strategic buyers (also known as company or corporate buyers) may have an interest in acquiring your company to expand geographically, to increase their range of products or services, to leverage your brand name and reputation, to access a new client base or for various other reasons. Many U.S. corporations still hold sizable cash reserves. Of the cash available at corporations, more is being used for strategic investment through acquisitions than anything else.

Individual buyers may include wealthy individuals, corporate executives and former business owners. Many buyers are driven to buy a business rather than start a business, theoretically giving them a better chance for success. Most individual buyers have little or no experience in operating the types of businesses they buy. Equity and debt capital for individual buyers come from their own equity funds, family members, financial institutions and seller financing.

Can my accountant sell my business?

Although an accountant can provide information pertaining to the financial aspects of your business, their expertise does not include selling businesses. Accountants do not have access to buyers or the knowledge specific to the process of selling a business. We prefer to work closely with your accountant to determine key factors when valuing your business. Your accountant will be an important advisor and contributor throughout the transaction of selling your business.