1. Understand the different types of buyer:
There are typically three types of buyer – strategic buyers, financial buyers and operator buyers. Understanding what type of buyer you are dealing with will help you align your interests and assess their intentions for the future of your company.
Strategic buyers usually consist of companies already operating in your industry or those that are seeking to enter it. They tend to be looking to expand either vertically or horizontally or are looking to hammer out the competition. Strategic buyers often pay the most for acquisitions because they have identified a specific need and will likely have significant resources to make it happen.
Financial buyer is typically a long-term investor looking for a successful, well-managed company. They come in many forms, including investment partnerships, hedge funds, private equity firms and more. Your business is seen as an opportunity to acquire an existing stream of cash at a pretty price. Financial buyers are also more likely to want to you to continue to run your business after the acquisition. They tend to negotiate the most aggressively on price and package.
Operator buyers are more like you, a regular business person or group of partners whose main objective is to run a successful business. Their buyer intention is to enjoy a similar lifestyle to the one your company has afforded you and then possibly sell the business and move on when the time is right. Operator buyers will often have more limited resources, which can make transactions riskier.
2. Keep your employees at the forefront of your decision making:
The workforce is your company’s most valuable asset and it is important that a potential buyer understands this. Be aware that a strategic buyer may want to integrate your company within their existing operations, which could result in the workforce being scaled down. In order to protect your loyal employees, look for buyers who are aligned with this goal. Furthermore, it is important to retain your company culture – if you are selling to a large multinational company you will need to ensure they are willing to create an incubator within their organisation in which the unique character of your business can continue to flourish.
3. Ensure your timelines are aligned
Darren Fell, owner of online accountancy Crunch (www.crunch.co.uk) wanted to leave his previous company, Pure360 as quickly as possible. As a result, he accepted a £700,000 discount in order to concentrate fully on Crunch, while his partner stayed on to complete a six month earn-out. Often buyers will want you to complete an earn-out where you continue to manage the company for anywhere between six months and three years. It is important that you establish this timeline with any potential buyers in the initial stages of the deal in order to avoid any nasty surprises or potential deal breakers further down the line.
Sophie Turton is assistant web editor for Crunch, an online accountancy firm for small businesses, contractors and freelancers.