Understanding the types of buyers that exist and who to target when trying to sell your business can help you get the most out of your M&A deal. Let’s look at 4 types of buyers you may encounter.
Buyer 1 is new to the industry and is willing to pay a premium for a company with stand-alone strength. They want the owner to be able to manage at an arms’ length from daily operations. This Buyer is not an expert but feels there is an opportunity in your business model so is primarily buying for the ROI.
You might want to consider how many buyers there could be that fit this profile, who feel your company provides the best, safest, and most reliable market rate of return. A lot of time during the deal will be spent convincing this kind of buyer, explaining risks, and giving in-depth how-tos and explanations. The hand holding could consume a lot of energy and resources for a year or more.
The other challenge is when the buyer does not know how a market, sector, or company works, these leads to mistakes in how they apply risk discount. This presents in how much cash on close verses vendor carry. The higher the perceived risk, the higher the vendor carry will be.
Buyer 2 is involved in a related or competitive industry now and is looking to buy market share. When Precision Drilling bought Kenting, Hank Swartout said he did not buy 100 more rigs… he bought 30% of the marketplace overnight. That was worth top dollar to him. This Buyer has access to replace whatever skill sets necessary; the existing owners are able to stay for their work agreement, and the buyer is able to replace their positions when the timeframe of their agreement is up.
This Buyer does not have to be trained on the ROI opportunities or educated in potential risks and upside because he/she is already aware of them. Buying is based on strategic advantages and possible higher rates of return.
Buyer 3 is someone or a group of people that is/are interested in having their own shop. Perhaps they tried to buy the shop they worked for, but it wasn’t feasible. These buyers have skills and a strong desire to make things work.
They will maximize how they utilize you for the first few months, but they will move you out once they’ve leveraged your expertise, as they will want to do things their way. This buyer requires the least amount of education and is looking for encouragement to take the risks. They will have desire to manage risk, but charge forward.
Buyer 4 is an international buyer and is looking for a solid foot hold into the Canadian marketplace. They are going to keep everything status quo, except they will put in leaders from their existing operation somewhere in the world. It barely matters to them what the system is inside your group, as they are going to change the model to fit with their other operations. They will spend top dollar to keep you and your partner around a long time as insurance of continued momentum. The only education required is the peculiar aspects of some of the Canadian work. This buyer already knows a lot about the industry.
The Implications When Selling Your Business
If you do not know what each potential buyer is looking for in respect to your specific opportunity, why invest the next 3 years in preparing for a buyer? You could be preparing for a buyer # 1 when the marketplace might have hungry #2, #3, and #4s determined to do a deal?
There are always buyers who feel they are smarter than sellers and looking for the right deal. With the average transaction taking a year from when you start, why would you not make progress on every strategy concurrently and cherry-pick the deal that works best for you? The time to pursue one or two strategies at a time is MUCH longer than strategically testing the market for opportunities, while you’re reinforcing your team and options.