Many business owners will sell to the first buyer without taking into account other potential options. As such, when selling your business it is important to ask specific questions. Is this really the right buyer? Will this entity pay more for the business than anyone else?
Business owners often rely on a lawyer or an auditor to look for potential buyers and investors without considering that 70% of the deal value lies in finding a suitable buyer. Hence, it is essential to find a buyer that is the best strategic fit and will pay the most for your business. To maximize the value of your company, you or the advisors must engage in a rigorous search process to find buyers or investors who can deliver the highest synergies for your business and those with the strongest financial profile.
Moreover, the best buyer is not always the closest or most obvious. The best counterpart for your company could be for example, from a different sector located on the other side of the world.
ONEtoONE insight – how we added value
Once, in ONEtoONE Corporate Finance, we advised a company that generated ten million euros each year. The company had two million euros in operating income (EBITDA) and six million in financial debt. We found a buyer in the same country (Spain) whose company earned double of what this other company earned, but had accumulated a lot of debt. This entity was interested in buying the company, offering to buy it for six times the operative income, which meant that discounting the company’s debt; the potential buyer was willing to pay six million euros for the selling company. As the potential buyer did not have enough capital up front to pay for the company, they offered to pay two million at the time of the sale and the rest of the four million over the upcoming years.
We also found a German buyer with a turnover double that of the sellings company’s, but contrary to the Spanish buyer, they did have financial capability. Given that it was an international operation and the German company did not have a presence in Spain, it offered to pay a higher price for the company. They offered to pay seven times the operating income, (that after subtracting debt, it valued the company at eight million euros) and also planned to pay for the company in deferred payments, paying six million at the start and the rest of the two million over a two year period.
We then attracted a third buyer, a Canadian company with a turnover of more than a billion euros, from which they earned a total of 100 million with no debt. The company saw many synergies with our client and at the time, they did not have any presence in Europe. They had a lot of interest in the company and offered to pay ten times the operating income of the company after subtracting the debt, which left the buying price set at fourteen million.
If we were to have sold it to the Spanish firm, the firm could have come up with excuses not to repay the remaining four million euros and could have ended up paying just two million for the company. The Canadian company paid seven times more.
Identifying the right buyer
For your company, you should look for a buyer that gives you synergies and has a lot of cash in hand, without minding so much about its location. If the buyer can perceive the true added value of your company, they will be willing to pay more for your business.
So, how can you find the best buyer who will pay the most for your company?
Around the world there are more than 120 million companies, with more than 600 risk capitals and more than 50000 Family Offices.
To start you must follow a few steps:
1. You must know what you want: In order to find the best buyer you need to know what you are looking for. You should also know the buyer and how they operate their corporations. Start with a generic search and then narrow it down into a specific search to find more concrete information.
2. Analyze and filter the results. There are many companies that can buy your company but you need to narrow it down to a single one. This can take a very long time. Start by filtering and if needed, find a company to help you with this process of analysis.
3. Get in touch with the companies. You may have to contact 200 firms or more, and it unfortunately, it will take a long time. So how do you become more efficient? If there is a search for an appropriate mediator, then the target must be analyzed. When the target is contacted there is then more speed to the process. Lastly, analyze the information being monitored by the client.
Finding not just any buyer, but rather the buyer that will create the most value for your company; one that gives off the best image, adequately manages communication, classifies business by what will bring the most value and enjoys good alternatives with other possible buyers. It is crucial so that the operation has widespread and ongoing success. If you are ready to sell your business, don’t hesitate to contact us!