TYPES OF BUYERS
As a Seller of a business it is important to know the types of buyers you will encounter in the sales process. Selling a business successfully requires the help of a M&A advisor who “knows the ropes” and has dealt with each type of buyer.
Financial – Financial buyers like to base their buying decisions on the numbers. It is all about the numbers, multiples, and financials (both historical and projected). They tend to be industry agnostic because it doesn’t matter what type of business it is; it matters what numbers the business can produce. I would call them the “bean counter” guys. Bankers and business appraisers usually are enlisted to provide comfort and figures for the transaction. It’s all about how the numbers look, particularly the EBITDA numbers. They buy based on a multiple of EBITDA with the idea of growing the business. Financials buyers tend to like businesses that have had a strong, steady growth over the past 3 years versus a jump in sales the past year because they like to average the numbers over a 3 year period. Financials buyers like stability and reliability.
Strategic – Strategic buyers tend to be less about the numbers and more about the opportunity provided by the acquisition. They care about numbers, don’t get me wrong, but in the back or their mind they care more about how this business will help their existing business plans. As an example, if you had a piece of real estate that was only 5 acres, but was surrounded by real estate owned by a developer who wanted to develop the whole piece including yours, your 5 acres would most likely be worth much more because it was the final cog in his plans. He would pay a premium for your 5 acres. Strategic buyers tend to pay more because the business is worth more to them as it fits into their overall strategic plans.
Partner – A partner could be either strategic or financial. Partners generally want the Seller to hold equity post-close. Partners generally acquire 20-90% of a business and work with the Seller to grow the business post-closing. Partners can provide financial support, management oversight and guidance that the Seller of a business lacks.
Rick Krebs, CPA – Valuations Expert & Mergers and Acquisitions Professional. Creator of the MyBizValue system for business valuation and Principal at Business Sales Group. He graduated with a Master’s of Science Degree and Bachelor’s Degree from Utah State University. He has been valuing businesses for over 24 years.