What Type of Buyer Will Pay the Most When You Sell Your Business?
There are quite a few different types of buyers when you sell your business. Who will pay the most for your business?
When selling your business it is important to look at all business buyer groups in order to get the highest sales price for your business. You want to focus on the best buyer group for your business sale while continuing to market to all reasonably possible buyers. Types of buyers include:
- Synergistic buyers – These are buyers that can pay more for your business because they should be able to make more money from your business than you can. An example is two delivery businesses which run the same routes. Combined into one – many less trucks and drivers will be necessary to deliver the same packages greatly increasing the profits.
- Financial buyers – These are buyers looking to buy a good business who do not have synergies. In effect they are going to buy your business, “for what it is worth” based on your cash flows.
- Platform / Add-on’s – A platform is the first purchase a financial buyer will often make. This is often a larger company. After that financial buyers often will buy additional companies to “add-on” to the larger company they purchased as a platform. Sometimes these add-on purchases can be synergistic. It is important to understand how your buyer could be looking at the transaction in order to negotiate your best deal.
- Competitors – Unless an industry has strong synergies, competitors will buy your company but they usually only want to do so if they are going to get a great deal (namely pay a low price). On the other hand if you are in trouble, a low offer from a competitor may be your best possible offer.
- Managers – If your managers have been groomed (including having some equity money available) they can make great buyers. Most do not though as they are too old, do not have the interest, and do not have the money.
- Individuals – Up to about $3-4 million in business value, individuals provide most of the buyers. Can be unpredictable and hard to work with as this is just as much an emotional roller-coaster for them as it is for you.
Each buyer group has different things that are important to them and they view risk and what constitutes risk differently. It is important to understand your buyer and market to them appropriately.