When considering the sale of your company an important consideration is : “Which type of buyer will be right for me”? To achieve the best possible outcome, an owner must select the buyer or investor most complementary for his personal goals and his company.
Buyer types are best classified into three basic types of buyers/investors: 1. Individuals; 2. Strategic Investors; and 3. Financial buyers, such as Private Equity Groups. Below we list some characteristics of each to help you determine the right fit.
- Often a high net worth individual looking to “buy a job”.
- Usually retains existing management except for CEO and/or absentee owners.
- Consider smaller transactions that usually falls below the radar of strategic and private equity buyers.
- Often replace owners desiring to leave the business.
- May be the only liquidity option for companies not big enough for strategic or private equity investors.
- Typically, much larger companies.
- Consider acquisitions to expand their product or service offering, technology, market share, geography or obtain other proprietary advantages.
- May offer high valuations, reflecting anticipated increases in revenues, savings from operation consolidation or other synergistic benefits.
- Typically value potential acquisitions based on overall strategic value and tend to be less financially focused than Private Equity buyers.
- Usually expect to purchase 100% of the company with a portion paid at closing and a smaller portion paid out over the next few years.
- Individual management team members may or may not be needed post-acquisition depending on the buyer and their current personnel.
- Prefer to do transactions above $5MM in size.
- Conduct a much slower acquisition process than that of Private Equity Groups as strategics must form= consensus among larger group.
Financial, or Private Equity Groups (PEGS):
- Provide funding to retire inactive shareholders, finance a generational transfer, or facilitate a management buyout.
- Often use the Financial Recapitalization as a favored investment tool. (In trade for company stock or assets the owner receives immediate liquidity. The shareholders and PEG both may want the shareholders to retain a portion of equity to sustain ongoing interest and future appreciation.)
- Customize transactions with flexible deal structures.
- Consider themselves partners with owners.
- Often support growth then sell the company again within seven years. (Potentially resulting in another equity payday for shareholders).
- Avoid day-to-day operations of a business but do intervene if the company falls off track.
- Can provide a valuable advisory and sounding-board role to the owner or management team.
- May provide additional growth capital along with strategic and M&A assessments.
For more information on your ideal buyer type, please contact us.
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