Identifying a list of potential buyers will help you to sell your business, even if you’re planning to consult a professional business broker for the sale. Having a ready list of possible buyers will help you identify what you need to do and the sort of people to approach when it’s time to sell your business.
The great thing about management buy-outs (where entrepreneurial employees buy the business from the employer) is that, from the owner’s point of view, they can be both confidential and convenient.
One of the challenges of selling a business is not giving away any state secrets when you take your business to market, which is why people use business brokers who present selected buyers with anonymous information memorandums. These marketing documents describe the business opportunity but don’t identify the business or include any personal or commercially sensitive information. In dealing with your employees, you deftly side-step any such issues because they’re already involved in the business.
If you have a group of managers or team leaders with the experience, operational knowledge and ambition to run the business for themselves, they could also take a lot of the hassle out of the sales process for you. For example, the due diligence stage should be a lot quicker because the people buying your business have been involved with it for some time and should have all the knowledge and information they need.
However, management buy outs often stand or fall on their cohesion and ability to find finance. Managers can disagree on their aims, so it’s worth insisting that communication is lead through a buy-out leader – like the current general manager, if they’re involved – to streamline the process.
Time also has to be allowed for the buy-out team to find the required financing to meet your price. There may even be some flexibility required on your part when it comes to price – remember, if negotiations end bitterly and without a sale, you still have to work with a possibly resentful and demoralised buy-out group among your staff.
For larger businesses, the first step to a management buy-out is calling in an investment bank to establish the feasibility of the buy-out team’s plans before they draw up a new business plan, find financing and then enter final negotiations with the owner.
While most small businesses can’t call in investment banks, it’s still worthwhile involving a professional third-party such as a broker or valuer to help move the process along so you don’t get bogged down in the negotiation phase.
When it comes to selling a business, it’s often your enemies you should look to before your friends. After all, it’s your rivals – who might’ve been suffering at the hands of your competitive advantages for years - who’d most likely place the highest value on assets that have powered your business’s capabilities.
It doesn’t matter if it’s a balance sheet full of specialist equipment, staff with unique operational skills or market-leading intellectual property – there might be a competitor out there who’s willing to stump up for the entire business just to get their mitts on those assets.
While this can’t be applied so effectively to businesses with few USPs (unique selling points), a competitor may still value your business purely on its market position alone. If a rival wants to expand their overall market share, there’s no better way than taking over an already established brand that performs well in a different niche of the same market. For example, large, price-leading businesses often add another feather to their bow by acquiring smaller, niche, quality-leading rivals.
The main concern with approaching a competitor is confidentiality, which is why the approach should always be made by a professional business broker. If a business owner goes public with their intent to sell, it’s not unheard of for rivals to start circling as prospective buyers to gain market-sensitive information before pulling out of the sale process.
Even if you’ve never exported or competed with a global competitor, your business still could have value to an overseas counterpart if it represents the opportunity to get a toe-hold in the New Zealand market or a long-term cost saving when serving Kiwi customers.
Engage an independent valuation of your business before you do anything else, and once you have precise figures you can collate into a marketing document, hire a business broker with international experience.
Using a broker is a must in targeting potential buyers overseas. Even if you provide most of the names for the eventual buyer short-list, the broker will be able to guide you through the specific processes and due diligence if you’ve picked one with direct experience in your geographical target market.
Another way to identify potential buyers is to scan the supply chain from one end to the other. Suppliers, distributors and manufacturers often aspire to ‘vertical alignment’ – having stakes in different stages of the supply chain – to increase their control and market influence. This can especially be the case in small, niche markets populated by a few specialist players.
Equally, the end customer group could be a great place to find potential buyers if they rely on the supply and distribution of a product or service, and stand to lose a lot if it stopped or gain a lot if they could exert more influence over the market.
A prime example is overseas groups who rely on basic commodities such as meat or milk products that they have to source from New Zealand. The end customers often try to increase their stake in the supply chain by buying New Zealand farms and industry. The principle is the same regardless of the size of the business if the demand is high.
Approaching overseas buyers can be complicated if you don’t have previous experience as an exporter. For advice, consult New Zealand Trade and Enterprise.
Experience, and how much of it an entrepreneur would need to come in and run your business, is a key issue for many small businesses going to market.
If no previous industry experience is needed, then a broker could target your business at the franchise end of the market where many people become self-employed for the first time. The biggest stumbling block to buying into a franchise is the lack of strategic control franchisees have. They sometimes have to follow the franchise plan exactly to avoid penalties.
This leaves many first-time entrepreneurs eyeing up existing businesses that can enable them to bypass all the growing pains of the start-up phase while still allowing them to be their own boss.
Find out more with Buying a franchise.
The question is – how easy would it be for someone like this to take over your role? Even if no previous experience or qualifications are required, they may still require your ongoing support and bank of knowledge to ensure a smooth transition. If this doesn’t present an issue for you, this might be the best buyer market for you because you can negotiate much more strongly on price if the buyer needs to include your ongoing support as a condition.
If you have a management team in place with enough operational knowledge, the business might be an attractive proposition for investors who want to remain hands-off.
Work with a professional business broker to start compiling a list of potential buyers. Rank them in terms of preference before having your broker qualify them as being in a position to buy the business.
A broker will be able to quickly identify individuals and investment groups looking for opportunities in your sector, but it’s worth checking other sources as well – such as trade associations and industry-specific publications – so you’re not completely reliant on one source of information.
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