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EXIT STRATEGIES: Finding financial buyers

Use the broker networks and ‘Businesses for Sale’ magazines There are numerous web sites advertising interested buyers. These are investors looking for general businesses, companies looking to expand and executives looking to buy with their retirement funds. By searching through these sites you might be able to establish a database of contacts you can use […]
SmartCompany
SmartCompany

Use the broker networks and ‘Businesses for Sale’ magazines

There are numerous web sites advertising interested buyers. These are investors looking for general businesses, companies looking to expand and executives looking to buy with their retirement funds. By searching through these sites you might be able to establish a database of contacts you can use at a later date. When there is no pressure on you to sell, you can be making contact with the site owners to establish your interest. The same applies to magazines advertising sellers. Simply make the contact to see who the buyers are and what their interests and timescales are. Some buyers are always looking and often buy. Having them in a database to contact at a later stage will make the final part of your sale easier. Instead of looking for buyers, you will already have a database of interested parties.

“If you’re not so concerned with keeping your plans quiet, you may want to consider a campaign targeting thousands of potential buyers via direct mail. Wellesley (Mass.)-based New England Business Exchange, the M&A specialist that sold Knight’s business, sends out up to 10,000 letters to investors and CFOs in related industries, among others, describing the company for sale in generic terms. A mailing typically gets 50 to 250 responses. After interested parties sign a confidentiality agreement and send a preliminary letter, marketing books get sent out. Ultimately, five or so prospects end up bidding against one another. ”This auction process will get you a higher price than a quiet deal,” says Stephen Madden, president of the New England Business Exchange. Since it will also likely turn up rivals as buyers, it may not be best for companies with patents, trade secrets, and other confidential information to protect.

Source: PUTTING YOUR COMPANY ON THE BLOCK , By: Gutner, Toddi, Dunkin, Amy, Business Week, 00077135, 01/26/98, Issue 3562

Split sale

You might discover that your business is too large or too complex for a single sale. It may be more productive to split the business up into components, each representing a well defined stand-alone business. Preparation for sale could also be phased over time where each segment could be positioned and developed prior to sale.

Further Considerations in Selecting the Buyer

With smaller firms, the acquisition might be done by an individual, either a cashed up entrepreneur, a retired executive, a wealthy individual looking for a business to run or someone wanting to move out of a large corporation into an activity where they can build wealth. Larger businesses, say over $2 million, will normally be out of the price range of individual buyers. For the larger business, the buyer might be a corporation looking to expand and seeking complimentary acquisitions or an investment fund or trust looking to add a profitable business to their portfolio. Finally, it could be a private equity fund seeking a business which could be developed and sold or listed. Each of these groups of potential buyers has very different objectives and very different criteria for what they are seeking.

A. Non-Corporate Buyers

Most medium-sized businesses are acquired by corporations who want to expand or want to take advantage of some economies of scale. However, there are other buyers with different motivations.

1. Individuals as Buyers

An individual seeking to buy a business is most often a cashed up executive, either from the sale of a previous business, or has accumulated money from an insurance payout, a retirement fund or been made redundant and has been given a generous redundancy package. Most of these potential buyers are seeking businesses they can develop themselves. Not that they are necessarily looking for bargains or fire sales but they anticipate working in the business to create personal wealth and thus want to see how their own knowledge, capabilities and networks can be used to develop the business.

A business which is well run, profitable and on a growth curve, may not be of great interest to them as they will have to buy future potential rather than develop it. This type of buyer normally expects to take over as the CEO and is likely to want to retain the senior management team. Sometimes they are interested in the prior owner continuing to work in the business, but normally only as a transition arrangement.

The vendor will wish to find a buyer who can clearly execute on the growth potential of the business. Thus the buyer should, ideally, have experience with a somewhat larger business so that they understand how to manage the business which the vendor’s firm will grow into. They should be familiar with the industry, have good networks within the industry and be able to show they have general management experience rather than come from a specialist functional role.

Potential buyers who have already operated a similar business successfully and sold out, will be of special interest to the vendor. Their background can be investigated, past employees can be interviewed and the buyer of their previous business can be asked to comment on the state of their prior business before and after it’s sale.

Business brokers and smaller professional services firms often know of individuals seeking to buy a business. Thus making contact with local firms, networking within the industry and advertising the business through trade journals and via businesses for sale websites is probably the best way to generate a list of interested names.

Here is an example of such a listing:

“HADDONSTONE THE STONEMAKERS Manufacturer of reformed sandstone at its factory in the NSW Southern Highlands. In operation for 22 years it produces high quality paver, pool coping and dry walling plus an extensive range of architectural products for the residential and resort markets. Sales $2.5m and capable of significant growth. Indicative asking price including stock $1.3 million.

BUILDING MATERIALS SUPPLIER Distributor and reseller of products used in commercial and industrial construction. Sole agency for imported product line and manufactures own brand major product. Established over 30 years has an excellent market reputation. Backed by experienced sales and operational team using focused IT systems. Annual sales approaching $5m achieving 25% GP.

CIVIL CONSTRUCTION AND DEVELOPMENT GROUP Highly profitable business undertakes civil engineering/construction projects for both private and government clients and its own land subdivisions. It owns all premises, plant and equipment and a residential land bank, which is being constantly developed and replenished. Managed by experienced and loyal staff the business has been profitable for over 20 years with 2004 pre-tax earnings exceeding $11 million.

STORAGE AND HANDLING EQUIPMENT Manufactures wide range of storage and handling equipment for hospital, food service, supermarket, commercial kitchen and cold storage use. Proprietary lines are protected by patents. National distribution network comprises 350 dealers. Annual sales $6 million with return to owner/operator of around $700,000.”

Source: https://www.jamiesons.com.au/businesses-for-sale.html Accessed 10 Sept. 2005

Individuals buying businesses often search through business for sale listings looking for an appropriate business to buy.