Category: Helpful tips for SME's | Preparing to sell a business
Should you decide it’s time to sell your business, one of the questions you might ask yourself, or your broker, is: who will buy my business?
It’s important to think about this before you make the decision to sell. A better understanding of the types of buyers out there, and the ones best suited to your business, will help you position your company to be an attractive proposition to the best buyers. This will help you maximise your business’s value and get the best possible price when you sell.
The type of buyer will vary according to the size and nature of your business, however, they generally fit into one of the four categories below:
1 – High net worth investors with industry experience
These buyers are often business owners in their 50s and 60s who have recently sold businesses for substantial amounts. Left with time on their hands, they are typically not people who want to retire early. They are therefore looking for a smaller business in the industry they know, to which they can bring their experience, contacts and financial backing.
We typically see this scenario with the precision engineering sector. Such buyers are looking for engineering companies turning over £1m to £4m. Often they are looking to acquire 3-4 companies in order to build a group with a turnover of £10m to £15m.
2 – Trade / Strategic buyers
These buyers are existing companies in similar or aligned industries looking to expand and/or diversify. Whilst direct competitors may be interested in acquiring their competition’s client base, they do not tend to offer the highest value.
The best trade buyers are those who have a strategic objective. For example, to extend the coverage of their service into another geographic region or to add a complimentary service to their existing business and open up the opportunity to cross-sell to the merged client base.
Most of the trade sales we have completed have been for professional B2B service sector businesses, such as IT support companies, commercial cleaning businesses, marketing agencies, and accountancy practices. With these types of businesses, buyers need to have specific industry knowledge and capability.
3 – Private equity with management buy-in
These buyers are usually looking for businesses with annual revenues of over £5m and a net profit of over £1m. There is a growing number of small private equity firms looking at a variety of industry sectors and the smaller end of the market. They look particularly at the growth potential and obviously the return on their investment and often have a pool of management buy-in (MBI) candidates with the relevant industry knowledge to take charge of the business post-acquisition.
We are often approached by such niche private equity firms who focus on buying businesses in the engineering and B2B service sectors we specialise in, as well as MBI candidates themselves who are already backed by an appropriate private equity firm.
4 – Entrepreneurs with spare cash of £200k to £1m
These buyers fall again into two categories:
A) those who have built up their cash reserves during a successful career, for example in the city or a large corporation. Having left the corporate world they are looking for something more interesting to invest in and manage than the alternative of property or leaving the cash in the bank.
B) Serial entrepreneurs who build businesses over a period of 3-5 years with the purpose of selling and starting again on a new venture. Either way, these buyers tend to be looking for small, sub £1m turnover, highly niche businesses.
Now you know more about the types of businesses and people who tend to buy businesses, it’s time to figure out how you can take action to find, connect and engage with potential buyers.
We’ve suggested four things below that we’d recommend you do.
1 – Attend your industry’s trade shows and expos
There’s no better way to build your industry network than to attend trade shows. They’re often packed with large numbers of relevant people and they’ll be an excellent place to scout out both companies and contacts.
2 – Read industry news and related business press
Keeping up to date with the movers and shakers within your industry is always a good idea. Reading relevant industry news and publications could highlight companies or individuals that are active buyers and therefore a potential target for you.
3 – Subscribe to the email newsletters of the merger and acquisition (M&A) advisors that specialise in your industry
These newsletters will be a great source of information on people and companies that are looking to buy, as well as the types of businesses that are looking to sell.
4 – Engage a business broker
We’re biased, of course, but engaging a business broker to help you find the best buyer for your business really is one of the best decisions you can make with it comes to selling your business. Business brokers are there to help you find the right people, get your business ‘sale-ready’ and answer your questions. The only thing you have to do is find the right one!
Since we’re talking about answering questions, if you have any to ask relating to this article or any other articles you’ve read on our website, we’d be happy to answer them. Simply contact us using the form below or, if you prefer, you can us on 020 8090 9380.