3 Types of Buyers You Meet When Selling a Business
There are 3 types of buyers looking to acquire a business; Individual, Strategic and Financial.
As you approach the right time and begin to consider selling your business, you will soon find that navigating the world of mergers & acquisitions can be overwhelming. There is much to learn and experience for business owners new to the selling process, which is why Viking Mergers & Acquisitions educates all of our sellers on the different types of buyers you will meet in middle market M&A. By understanding the three main types of buyers, you will be able to better understand their decision making process and what’s important to them, as well as help you determine what is best for you.
Individual buyers are financially secure individuals looking to purchase and manage their own company. In most cases, the Individual Buyer is looking to leave Corporate America and become their own boss, thus the reasoning for buying their first business. Oftentimes, this buyer will have good sales, marketing, leadership, and people skills and will place higher value on finding a business that aligns with his interests. Geography is also important to this type of buyer because typically, they are looking to change industries, not relocate.
Some of the main benefits of working with an Individual Buyer include:
- Not interested in relocating the business or drastically changing it
- Wants the structure of employees 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 resume that should help the business growth to the next level.
- Most individual buyers are owner/operators and plan to be active in day to day operations.
Some of the challenges a seller could potentially face with Individual Buyers are:
- Buyer may have little experience in the industry, but a resume that should allow for a limited learning curve.
- Fewer financing and deal options exist. Typically, a financial 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 buyer prospect up to speed.
Strategic Buyers are generally established entrepreneurs from within the same industry sector, looking to expand. Typically, Strategic Buyers are already stakeholders in a successful business within similar products offerings and are looking to either expand into your geographical territory or acquire a business that specializes in a product or service that they are lacking. Strategic buyers generally 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.
Some of the main benefits of working with a Strategic Buyer include:
- A wider array of financing options available.
- Equipped to take the company to a higher level of success and profitability.
- Prior industry and management experience.
Some of the challenges a seller could potentially face with Strategic Buyers are:
- Loss of company identity due to possible merge with buyer’s existing business.
- Change in culture or position eliminations due to company consolidation.
Financial Buyers are generally a group of investors (2 or more) that are interested in purchasing, investing in, and reselling a highly-profitable business in a vibrant geographic location. Financial buyers are also referred to as Private Equity Groups or Partners, and this type of buyer’s main focus is to maintain the highest possible return for their investors. Sometimes, these buyers may own a ‘platform business’ and are looking for privately held businesses that would be good add-on candidates. These buyers may also be looking to acquire a ‘platform business’ that creates a stable foundation for future growth. Financial Buyers generally possess a stellar work background and strong financial capabilities with money intended to push the business into further growth. Financial Buyers usually plan their exit strategy during purchase negotiations and the typical ownership span of a Financial Buyer ranges from about 5-9 years.
Some of the main benefits of working with a Financial Buyer include:
- Little 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.
Some of the challenges a seller could potentially face with Financial Buyers are:
- The company may switch 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 possess different strengths and weaknesses but at Viking Mergers & Acquisitions, we are highly trained at screening each buyer to ensure we find the correct fit for you and your business. While the sales price and financing is a critical factor, how you leave your business is just as important and finding a good cultural match is essential. Every buyer that we meet with is pre-qualified by Viking standards before meeting you. We require all buyers sign a confidential non-disclosure agreement to protect your privacy, as well as provide a personal financial statement to prove they are monetarily 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 mesh with and feel positive about handing over your business to.