Types of Business Buyers: All Buyers Are Not Equal
Just like businesses, buyers come in all shapes and sizes.
These buyers look at your business strictly as an investment. Financial buyers could be private equity groups, investor groups, or even individual investors. They’re likely not experts in your industry, and will bring in a manager or management team to run the business to protect their investment.
Strategic buyers are usually very familiar with your industry and may be interested in your business as a way for them to expand their product or service lines or take their products and services to your market. They tend to look more at the opportunities for growth than their return on investment.
These are people who have the skills to manage your business. Essentially, they’ll replace you or your top management as the leader of the business. They may have their own capital or be backed by other investors.
Competitors are often the buyers of last resort; they may be more interested in your customer list than actually buying your business. This may be true of your direct competitors, but a competitor can also be a strategic buyer. A large, indirect competitor may see an opportunity that other types of business buyers overlook.
THE “RIGHT” BUYER
It’s useful to know which type of buyer you’re dealing with, because it can affect the selling price of your business. It’s commonly assumed that a strategic buyer will pay more than a financial or other buyer, but this isn’t necessarily the case.
Just like an auction, the buyer that will pay the most for your business is simply the one that wants it most. A private equity group might think your business is a good investment, but they may be looking at 10 or 20 other businesses that are also good investments. They don’t really care that much if they buy your business or another business.
Similarly, a strategic buyer isn’t necessarily going to jump up and down about buying your business.
At the end of the day, the buyer that wants your business—or just has to have your business—is the one that will place a higher value on your business and probably also offer better terms.
This can be very important during negotiations. An experienced negotiator will be able to “read” the buyer’s level of interest and negotiate a better deal for you.
The Right Fit
While it’s nice to be able to sell for the highest price, it’s often the case that the seller is more concerned with other factors:
- Will the buyer complete the transaction?
- Will you be able to work with the buyer through the transition process?
- Will the buyer continue the company’s legacy?
- Will the buyer respect the culture of the business?
- Will the business’s management and employees be taken care of?
When helping you identify the types of buyers who would see value in your business, we take your personal preferences into account. Our goal is to help you find a buyer you are comfortable leaving your business with while ensuring you get the most possible out of the sale of your business.