Even if you have just begun thinking about selling a business, you have likely already realized that the world of mergers & acquisitions can be overwhelming. For business owners who are new to the selling process, there is a great deal to learn. That is why Viking Mergers & Acquisitions educates all of our sellers on the different types of buyers you will meet in middle market M&A. When you understand the three main types of buyers, you will better understand their decision making process and what is important to them, as well as what may be best for you. There are 3 types of buyers looking to acquire a business: Individual, Strategic, and Financial.
Individual buyers are financially secure individuals looking to purchase and manage their own company. In most cases, the Individual Buyer wants to leave Corporate America and become his or her own boss. Often, this buyer will have strong sales, marketing, leadership, and people skills and will place high value on finding a business that aligns with his or her interests. Geography is also important because typically, this buyer is looking to change industries, not relocate.
Benefits of working with an Individual Buyer:
- Not interested in relocating the business or drastically changing it.
- Prefers employee structure to remain in place. In fact, an individual buyer will rely on key employees in order to transition into the business smoothly.
- Typically has a strong management resumé that should help the business grow to the next level.
- Most individual buyers are owner/operators and plan to be active in day-to-day operations.
Potential challenges of working with Individual Buyers:
- Buyer may have little experience in the industry (but also have a resumé that should allow for a limited learning curve).
- Fewer financing and deal options. Typically, an individual buyer will obtain an SBA backed loan. This is very common within small market transactions and is a good program for first time buyers.
- Learning the M&A process may present a learning curve. Our process helps facilitate the education process and gets the prospective buyer up to speed.
Strategic Buyers are generally established entrepreneurs from within the same industry sector who are looking to expand. Typically, a Strategic Buyer is already a stakeholder in a successful business within similar product offerings and is looking to either expand into your geographical territory or acquire a business that specializes in a product or service that he or she currently lacks. Strategic Buyers normally have strong financial backing, an industry background, and the experience to ensure success and longevity of the company. Many Strategic Buyers have prior M&A experience, thus hastening the overall process from their end.
Benefits of working with a Strategic Buyer:
- Wider array of available financing options.
- Equipped to take the company to a higher level of success and profitability.
- Prior industry and management experience.
Potential challenges of working with Strategic Buyers:
- Loss of company identity due to possible merge with buyer’s existing business.
- Changes in culture or position eliminations due to company consolidation.
Financial Buyers are generally a group of 2 or more investors looking to purchase, invest in, and resell a highly profitable business in a vibrant geographic location. Financial Buyers are also called Private Equity Groups or Partners, and this type of buyer’s main focus is to maintain the highest possible return for their investors. Sometimes, Financial Buyers are looking to acquire a “platform business” to create a stable foundation for future growth; or, they may already own a platform business and are instead looking for privately held businesses that would be good add-on candidates. Financial Buyers generally possess a stellar work background and strong financial capabilities, with funds available to push the business into further growth. These buyers usually plan their exit strategy during purchase negotiations, and the typical ownership span of a Financial Buyer ranges from about 5-9 years.
Benefits of working with a Financial Buyer:
- Minimal culture change within the company, and existing management team often stays in place.
- Professional buyers often equate to a faster process during closing.
- Easier financing packages due to higher net worth or funds already in place.
Potential challenges of working with Financial Buyers:
- The company may change hands in 5-9 years.
- Desire to keep managers in place may conflict with Seller’s exit plans.
- Normally have a minimum threshold of profitability; typically, $1 million+ in adjusted EBITDA to be interested in the acquisition candidate. This minimum profitability can be lower if they already have a platform within the industry.
These three types of buyers all possess different strengths and weaknesses, but at Viking Mergers & Acquisitions, we are highly trained at screening each buyer to ensure we find the right fit for you and your business. While sales price and financing are critical factors in selling a business, how you leave your business is just as important. Finding a good fit is essential. Every buyer we meet with is pre-qualified by Viking standards before they meet you, the Seller. We require all buyers to sign a non-disclosure agreement to protect your privacy & confidentiality, as well as provide a personal financial statement to prove they are financially able to purchase and maintain your business. To further ensure only highly qualified buyers move into the second round, we do not reveal any details about you or your business until you meet them.
As the Seller, you will play an integral role in finding the right buyer because no one knows your business like you do. We strive to provide top notch buyers that you will feel positive about acquiring your business. If you’re thinking about selling your business, contact us today for a no-cost confidential consultation.
- How long does it take to sell a business?
- What’s your exit strategy? Understanding Private Equity Groups.
- How to Value a Business (Accurately)