Who will buy your Company?
Posted by Tom Gledhill on Thu, Nov 05, 2009 @ 08:23 AM
An important element of Exit Planning is making an educated guess as to who will buy your company. Transaction value typically determines the type of buyer. Anything over $3 million in transaction value usually eliminates the individual and first time buyer. That leaves corporations and private equity groups (PEGs). Let's take a closer look at these 3 types of potential buyers:
Individuals - these are usually corporate people who have been downsized or simply want to be in charge of their own destiny. Financing is a huge issue here as is the appropriate industry experience of the buyer. At this point in time, some seller financing is a must. Another factor is that many prospective individual buyers are "tire kickers" and will never buy. Others are reluctant to "pull the trigger". It's important to have these buyers submit a personal financial statement and a resume before they can be considered serious buyers. A lot of time can be wasted dealing with individual buyers if they are not properly screened.
Corporations - these are usually strategic buyers, looking to expand geographically or looking to add to their product line so that they can sell more products and services to their customer base. Corporations usually have one or more people assigned to acquisitions, depending on the size of the company. Their due diligence is quite intense, but they can make decisions rather quickly. Financing is still an issue but not as much as with an individual buyer. Some seller financing may be necessary, but again, not as much as with an individual buyer.
Private Equity Groups - Whereas corporations are typically strategic or synergistic buyers, Private Equity Groups (PEGs) are financial buyers. They are looking for a return on their investment (ROI) based on operating profits and the eventual sale of the business. PEGs are usually looking for companies with revenues of at least $5 million and EBITDA of at least $1 million. If the PEG is looking to acquire an add-on to an existing platform company, it may be interested in acquiring a smaller company.
Once you've made an educated guess as to the type of buyer that may buy your company, you need to determine what they are looking for in your company. Your ability to identify these areas early on in the exit planning process will give you the time to improve them in order to maximize the company's value in the eyes of the prospective buyer.