“Potential buyers, including rival businesses, private equity firms and venture capitalists, all have sophisticated experts on their side and owners will need to be able to keep up.”
‐ Kiplinger
Potential buyers come in all shapes and sizes. They tend to fit into one of three categories: the displaced executive, the investor and the strategic buyer.
The Displaced Executive
The displaced executive tends to be a “bottom fisher”. He or she may have recently spent time at a multifaceted, multinational company and earned a significant retirement pool as well as a significant severance package. The displaced executive has cashed out the stock options and may be highly liquid.
Oftentimes, the displaced executive tends to be lost without a place to go and wants to be the “big cheese” in his or her own business.
Unfortunately, with all that time spent in a large corporation, the displaced executive has never had anything personally at risk tied to a business and has never had to choose between meeting payroll and making a car payment. Furthermore, the displaced executive may be untrained when it comes to running middle-market companies and may not necessarily be the ideal buyer for a privately-owned business.
The Investor
Investors tend to have specific criteria in mind regarding industry, margins and potential, as well as how businesses fit into their portfolios. They have definitive time frames for exiting the very businesses they are buying. They are willing to make down payments with participation for upside performance, and generally want some commitment to continuity of management, under their rules of operation. Investors can be very good partners and can enable business owners to take some chips off the table while the lure of additional payoffs remains.
Although there are benefits, the investor is not always the best choice for an exit strategy.
The Strategic Buyer
Strategic buyers usually look for complements to their existing businesses and may see them as efficient means to enter a market or to expand their existing businesses. When faced with “buy versus build”, this buyer will most often opt to buy and will therefore tend to pay more for an opportunity.
If they are already in your industry, whether you stay or go may have little value to them. When all of the above factors are considered, a reasonable value of your business can be depicted.
Honestly, identifying a potential buyer is not a simple task. Our experience has taught us the actual buyer may surprise you.
Schedule a call today with an experienced CAPSTONE team member to learn more about how we can help position your business with a successful exit plan.
