Sell Your Business Today:
The Different Buyers
To understand why businesses are sold for the high prices they achieve, you need to understand buyers’ motivations to take on the risk of purchasing a company and their perception of the potential rewards that risk will bring.
For most businesses, there will be one or two hundred potential purchasers in the UK and around the world where we can see a very strong motivation for owning your company.
For IBA Corporate to sell your business successfully, we must first identify who these potential buyers are and we must also identify what it is about your business which offers them a personal and professional opportunity whose promise is greater than the risk they’re willing to take to own your company.
Why Choose IBA Corporate?
Over many years, IBA Corporate has built up its own internal database of active business buyers. These buyers consist of private individuals, high net worth individuals with entrepreneurial backgrounds, family offices, investment company strategy managers, search funds, venture capital fund directors, angel networks, and international corporate finance directors. We also maintain an active database of experienced board-level professionals looking for management buy-in opportunities.
These professionals will normally purchase your business in partnership with private individuals, high net worth individuals with entrepreneurial backgrounds, investment company strategy managers, venture capital fund directors, and angel networks with a view to selling your business onto new owners within 5 years.
The 5 Major Types
There are five major types of business purchasers and, when we represent the businesses we take to market, we thoroughly research our own database of acquirers and we consult widely with our extensive international network of solicitors, accountants, and other finance and M&A professionals.
Many successful entrepreneurs are driven by a need to run and improve businesses. Most individual buyers tend to gravitate towards owning businesses whose products and services they are familiar with and which are located close to them geographically.
In contrast, an individual buyer may have occupied a senior and very well-paid position in the private sector and they want to use some of their available funds to purchase a passion project which is already operational – the type of companies whose products and services they feel passionate about.
The acquisition of your business may suit a purchaser’s longer-term strategic objectives. Your buyer may be a competitor looking to increase market share and add extra value to your company or it may be a company selling products and services which compliment your current range of products and services.
With either type of purchaser, there are numerous potential advantages including but not limited to:
- Cross-selling opportunities
- Greater operational and financial efficiency through economies of scale
- Greater geographical coverage
- Technological or staffing advantages – you may have better software and employees than your acquirer despite their likely larger size
- Supplier and customer database leverage and enhancement opportunities
Contrary to popular belief, most strategic buyers are complimentary buyers and not competitors.
While a certain amount of value and market share can be added to a business by purchasing a competitor, far greater value can be added when two companies in complementary fields operate as one. As this is the case, the premium for buying your business will likely be higher than if a competitor buys it.
Private equity groups consist of both venture capital firms and high-net-worth individuals seeking investment in a business with a view to making a significant return on their risked capital by selling the company on to a third-party within a time-frame of between three and seven years.
In many cases, the initial purchase completed by a private equity group will be for a platform/flagship company within a particular sector to which they later add on acquired firms in the same or a similar field to increase their market share and drive down operational costs.
They may see your business as a platform/flagship business or they may already own a platform/flagship business and view the acquisition of your company as part of their overall growth strategy.
It’s much easier to sell larger (£5m+ T/O) businesses a month than smaller businesses. Although this may seem counter-intuitive, the reasoning is sound.
Transaction costs involved in purchasing businesses of any size are roughly similar. The purchase of a larger business often makes more sense because they will have much more robust and developed systems. This makes integration into an existing platform/flagship business they own easier or the group may intend your company to become their platform/flagship business purchase.
If your company is a larger company, we would expect that your likely buyer will be a private equity group and that they will pay a premium for owning your company as ownership of your business means that they have a better chance of hitting their own growth targets.
Many private equity groups prefer to purchase companies where the original owner will stay on for a predetermined time.
If this is the case, they may further incentivise the deal by offering you a small shareholding in the wider group and/or in the company you’ve sold in addition to the cash you receive. Their motivation for making this type of offer is that they may believe your involvement means that they can hit their own growth targets and exit themselves within the desired timescale.
Search funds are a relatively new development but an exciting one. They are founded by an individual with a particular talent and/or bank of expertise and this person is then backed financially by HNWIs. The search group then buys the types of companies their person of talent is particularly suited to run well.
Like with private equity groups, they work to a three to seven year timetable before selling the company (or companies as a group) onto a third party.
A management buy-in (MBI) is the purchase of a company by the firm’s existing management team. The purchase itself is funded by a private equity group or a bank with each member of the management team pledging their own personal capital to the project too as a show of faith in the project.
MBIs are becoming increasingly common in the UK because investors and financiers perceive that the deals present much lower risks. This is because the company’s existing senior management team, already responsible for most of the revenue and profitability of the business, will simply be taking control from the existing shareholders. In many ways, it’ll be business as usual.
IBA Corporate has extensive connections to investors and financiers willing to fund this type of takeover – please speak to us about it when you call. Please be aware however that investors and financiers will focus much of their effort on trying to persuade you and the other existing shareholders to drop your price so this route to a sale may not produce the best return for you.
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