The market is still active right now, creating an ideal time to sell (and buy). If relying on a family member to buy your business is not an option, this doesn’t mean the family legacy is ending. It simply indicates it’s time to start connecting with outside buyers. Let’s take a look at the types of buyers you might consider when navigating the marketplace.

The Strategic Buyer

A strategic buyer is looking for synergy and is interested in adding value to their long-term business plan. It might be a competitor, or a business looking to expand market share or product lines. It’s important to keep your options open when you evaluate strategic buyers because each one will bring something different to the table, providing clarification about who is the best fit for your business.

A strong strategic buyer is someone who desires to get into the industry your business resides in. These types of buyers will typically pay a higher multiple because they believe your business is a one-way ticket into that marketplace; you now hold a great deal of value to them. On the other hand, a competitor may devalue your business because they believe it to be inferior to their own company. Does that sound like someone you want to sell your greatest asset to? It’s important to stay aligned with your goals and objectives and not settle for a deal because it’s easy or convenient.

The Private Equity Firm

A second type of buyer, and common nowadays, is a private equity firm – a company that invests in a business for a relatively short time with the intent that you, the business owner, will likely remain with the company. When you begin interacting with equity funds, you will quickly learn where your business aligns in relation to them, as a platform investment, or an add-on investment.

Being a platform investment means that the fund is looking to partner with you to build this business up and out. The good thing here is that you remain actively involved in the financial/capital growth decisions. Similarly, your business becoming an add-on will bring creative value back to an equity fund due to the revenue you are ringing in, except you now sit below the platform and hold less power in decision making. It is vital to consider which position you would like your business to be in before jumping into a deal, so there is no dissatisfaction after months and years of major time and effort.

Regardless of which strategic partner you select, or equity fund you partner with, it’s always important to assure that they have a history of success. Doing business with someone who has minimal experience in doing deals creates the risk of a transaction falling through. Remember to make decisions that will benefit you, your family, and your business. We hope learning about these common buyers has provided you with insight and confidence going forward in your deal.

Osage Advisors provides a lot of guidance in the M&A market here on our blog and on our YouTube channel and Podcast.