Mergers & Acquisitions...
Merfeld & Schine, Inc.
Selling Your Company, Step 5:
Types of Business Buyers
Itís a bit of an oversimplification, but basically there are three main categories of prospective buyers of businesses:
Industry Buyers (or strategic buyers) are companies that are in your industry or a related industry that may be interested in growing by acquisition. The logic behind industry acquisitions is that by taking advantage of synergies it is possible to make 2 + 2 = 5. That is, a strategic buyer can take advantage of economies of scale, an existing client base, a particular distinctive competency, or a name and reputation. The whole will be more than the sum of its parts.
Industry buyers are best contacted directly by postal mail. Even if there is an industry buyer who you know personally and think may be a good prospective buyer, itís not a good idea to call him and say something like "Hi, I want to sell my business". If the contact is made through an intermediary like us, it shows the prospect that the sale will be handled professionally. It also shows the prospect that the deal will be shown to other prospective buyers, so a low-ball offers wonít be tolerated.
We use mailing lists of companies in our clientís industries broken down by geography, size, etc.
Individual Business Buyers
Many individuals look for businesses to buy. Unfortunately, there are many more lookers and tire kickers in this category than real buyers. A lot of lookers have unrealistic expectations ("I want to buy a business where I can earn $100,000 per year, manage it absentee, and buy it with 85% owner financing"). Also there is a high risk that individual buyers will get cold feet when itís time to pull the trigger.
Having said that, some individuals do buy businesses.
The key is good upfront screening.
We maintain a database of prescreened individual buyers broken down by their acquisitions interests, financial capabilities, and our own rating of their likelihood to really buy a business.
We also advertise using online business buy/sell websites, of which there are several. Buyers can search these business-for-sale websites by size, industry, location, and more to hone in a business that suits them.
Private Equity Group (PEG) Buyers
get a lot of press when they buy large companies, which they do fairly often.
PEGs also make a lot of acquisitions of companies with sales under $10 million. These acquisitions are not big news and are seldom reported in the press.
Smaller private equity deals usually take the form of add-on acquisitions. That is, a PEG will first buy a large company within a particular industry, and then grow that company by acquiring smaller companies within that same industry.
Unfortunately, most smaller businesses are not good candidates for private equity acquisition. But some are. Private equity groups are best approached through intermediaries like us who are familiar with several PEGs and know what they are looking for in terms of add-on acquisitions.
Next step: Protecting Confidentiality
Back to Summary of the Selling Process page
We focus on (but do not entirely limit to) companies with sales in the $1MM to $20MM range located in the New England States: MA, CT, NH, RI, VT, ME.
If any of our M&A services fit your needs, please feel free to contact us for a free consultation without obligations or sales pressure. Fill out this simple form or call us (401-751-3320)
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