The search for the best buyer and a good negotiation are key elements for a successful sell that reflects the hard work of the business owner. Not only should you find a solid offer, but also a buyer that transmits confidence and tranquility to the business owner.
This is why it is important not to make the mistake of selling the business to the first company or investor that makes an offer. The business owner should not make the decision without a previous in depth search and a good analysis of all the possible offers and opportunities.
In many occasions, finding the ideal buyer for a company can result in a long and exhausting process. For this reason, it is important to answer the following questions:
- Which are the different types of buyers?
- How to know if a company might be of interest for a buyer?
- Which are the methods for finding ideal buyers?
Types of ideal buyers for a company
The first thing that should be taken into account is to know the different type of buyers and their diverse interests that might make a company a suitable match for them.
Suppliers: In the majority of cases, a supplier tends to acquire a company with the intention of performing a vertical integration that will give him access to a relevant client of the acquired company.
Clients: The interest of acquiring a company from the side of a client comes from the necessity of guaranteeing a secure supply, controlling at the same time the price of origin.
Foreign companies: Many foreign companies that are trying to enter new geographical markets want to acquire similar local companies to facilitate the process of entry and the cultural adaptation to the market.
Venture Capital: The main objective of a venture capital is to enter in high risk sectors of high growth and opportunities. It should be taken into account that over 30% of the acquirement of businesses count with the participation of a venture capital.
Competitors: The majority of acquisitions of this kind of buyers are part of a competitive strategy, being defensive against the participation of foreign companies with a bigger market share.
Companies from other sectors: A buyer from another sector might find appropriate to acquire a company that works with specific products and/or services that might complement the innovation and growth strategy of the acquiring company.
Knowing the different types of buyers allows us to know the kind of entity we shall take into account at the moment of selling the company. As a second step, we shall identify what elements make a company attractive for each type of buyer.
How to know if a buyer is interested in my company?
In order to know if a company could be of special interest to a buyer, we shall fully understand the following situations:
- Knowing the trends inside the sector and the participation of the buyer in it.
- Knowing the distribution of the different business lines of the potential buyer.
- Knowing the strengths, weaknesses, opportunities and threats of the potential buyer.
But, how can we access this information? To do so there are different analytical tools that can be really useful.
Consists of the analysis of the strengths, weaknesses, opportunities and threats that need to be applied to the company, sector and potential buyer. This analysis will help us answer the following questions:
- What value and strengths can the company add to the potential buyer in a certain sector?
- What value and strengths can the buyer add to the company to create a competitive synergy?
The final objective is to obtain an overview of the possible matches that can open the door to a strong synergy between both companies where both opportunities and strengths can be taken advantage of.
Porter Five Forces:
Used to understand the most attractive sectors for a buyer. This method helps the businessperson to have a clearer picture of whether his business is in a favourable position to become part of a corporate operation or not.
The factors that determine if a sector is attractive or not are the following:
- Companies inside a sector with high entry barriers usually present higher cost effectiveness. Therefore, this type of sectors tend to have great attractiveness for buyers.
- Companies that operate inside sectors with high power of the client tend to have low cost effectiveness. Therefore, they try to acquire other companies to reverse this situation.
- The high power of suppliers in a sector increases the cost effectiveness of their companies as well as the level of attractiveness of a possible buyer.
- A sector with a low level of threat of having substitute products has a higher attractiveness to buyers.
- A sector without aggressive competitors also presents high attractiveness to a potential buyer.
The Boston Boxes:
This matrix is used to analyse the equilibrium inside the company portfolio of a buying entity and to be able to find what are their necessities. Hence, it would be possible to know if a company has something valuable to add to a certain group which would then translate into a possible buying interest.
This matrix distinguish between 4 types of business groups that could be interested in acquiring a company for various reasons:
- Cash Cows: Mature companies that are looking to acquire companies to maintain their position.
- Stars: Companies in the search for other companies to sustain their high levels of growth.
- Dogs: Companies with low growth rates that will probably be sold.
- Question Marks: Businesses that are not looking to acquire other companies due to the level of instability they are going through.
Until now we have been talking about the importance of knowing the type of entities that usually are interested in buying a company. We have also seen how the dynamics of a sector influence the level of attractiveness of a company for a buying entity.
Finally, through different tools, it has been made clear the different methods by which a business owner who wises to sell his company can know the current situation of his sector and hence have a better picture of what type of buyer to focus on.
The next step to know how to find the ideal buyer for a company is to analyse the main negotiation synergies that will allow to identify the best offer so that the selling operation can be a success.
Methods to find the best buyer for a company
First, it should be understood for who and why a company can be of interest for a buyer. Once this concepts are addressed, it is time to get to know the best buyers and their motivations for buying the company.
There are 12 concepts that can help you identify companies that can be looking to acquire a company.
Synergies: When a buyer wants to consolidate its strengths through the acquisition of a company so that the merger will be more beneficial than the individuality of both organizations.
Diversifications: Buying to diversify has the objective of acquiring companies outside the main business line of the buyer. This is made to enter growing markets with high potential.
Access to relevant clients: Some buyers acquire companies that will help them reach an specific client they were not able to reach before.
Strategic Realignment: Many times sectors change and the companies in them try to adapt through acquisitions.
Fiscal Reasons: Some buyers search for companies with high level of accumulated fiscal credit. The purchase of this kind of companies can avoid some tax payments due to benefits during a specific period for the buyer.
Overvaluation of the buyer´s stock market: Some overvalued companies are of high interest to the buyer because this allows the exchange between overvalued shares for shares with a normal value.
Technological Change: Technology changes different competitive factors and makes acquisitions a very favourable option for companies to adapt to new disruptive tendencies.
Regulatory Change: When governmental regulations change, the game also changes. In these cases a quick solution can be the acquisition of a company.
Competitor Pride: Increasing presence, size and remuneration is between the main objectives of directors of big enterprises. Therefore, an acquisition strategy can be very attractive.
Purchase of undervalued assets: There are some sectors that are in a downward cycle which makes the companies in it lose value. This is why it is important to keep an eye on the tendencies of the sector, as it can be a clear sign that selling your business is the best option before the company looses its value.
Purchase of unique resources and capabilities: A company can present high levels of attractiveness for a buyer thanks to its resources and capabilities that the buyer misses.
Gain power in the market: For a buyer, increasing their market share will always be of great interest for strengthening their competitive advantage.
A secure alternative for finding the ideal buyer for a company
As Enrique Quemada, President of ONEtoONE, says “in the selling of a company every experience is different and unique”. This is why knowing how to find the ideal buyer for a company is of great importance. Not only do you need to know the steps and the theory that make an operation successful, but also it is essential to be well advised during this part of the process.
If you still have doubts on how to find the ideal buyer for your company and how to manage a good negotiation, in ONEtoONE we put at your disposal a full team of professionals that will be fully dedicated, with transparency and confidentiality, to support you during the whole selling process. Do not hesitate to contact our team of advisors.
“In the selling of companies each experience is different and unique. Buyer and seller are unique and their necessities and interests in that moment are unrepeatable”. (Enrique Quemada)