One of the key factors in the process of selling a business is the “type” of buyer. Potential buyers can – and often are – categorised and separated in business discourse from one another as distinct and exclusive from one another. The two primary categories of buyers are trade (or “strategic”) buyers, and institutional (or “financial”) buyers. These are not fixed or concrete categories, but they are useful reference points. The type of buyer best suited to you will, of course, ultimately depend on your needs and goals behind the sale. Who you sell to will ultimately be determined through your own understanding of your goals, and then researching which type of buyer aligns most closely with those goals. In this article, we discuss trade buyers – how to identify them, what they can offer you, and when selling to them is more appropriate than the alternative. Trade (strategic) buyers Trade buyers are perhaps the most common “type” of buyer. Simply put, a trade (or strategic) buyer looks for companies that can be synergised with their existing operations. Most importantly, a trade buyer is looking at more than just the monetary value of the company; they are bidding because they are looking to gain something their business currently lacks. A trade buyer is therefore engaging in a strategic acquisition. For example, if they already operate within the same industry, they may want to inherit a larger market share by integrating your assets, customers and resources with theirs. If a trade buyer works primarily in a different industry, it could be that they are looking to expand into new markets or integrate. Typically, a strategic buyer will be planning:
A vertical expansion – such as a customer planning backward integration or a supplier planning forward integration
A horizontal expansion – for example, into new geographic markets or product lines
In short, the strategic buyer wants a company because it will enhance their existing operations. They are often willing to pay for readily realisable synergies, and often will pay for speculative synergies. Evaluating trade buyers Choosing a buyer is contingent upon your exit strategy. Trade buyers offer a number of advantages over institutional buyers depending on the circumstances, and if you’ve developed and understood your own objectives, you can judge for yourself whom to sell to. There are a number of scenarios in which selling to a trade buyer might be more fruitful than the alternative. For example, if you want a high sale price, but are concerned about the future of your employees and your business’ legacy, you could be well suited to a trade buyer. Continue reading on page two…
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