During your company’s sale, you risk the materialization of all the value accrued through many years of hard work. Considerable wealth can be created or destroyed in this precious time. That’s why you must know the techniques that will help you maximize the sale price.
Many business owners wait for a buyer to appear someday without stopping to think about the flawed logic in selling the company to whoever comes first.
Will he be the best buyer?
Will he be who can pay the most?
It would be a massive coincidence if it were. It’s much more likely that it’s not. Also, by being the only buyers, they have substantial leverage.
But how can you be sure that there aren’t other companies who can make better offers if you don’t do deep research?
Business owners often rely on a lawyer or a CPA to search for potential buyers and investors without considering that 70% of the deal value lies in finding the best possible buyer. Hence, it is essential to find a buyer who is the best strategic fit and, consequently, will pay the most.
To maximize your company’s value, your advisors must engage in a rigorous search process to find buyers with the highest synergies with your business and those with the most substantial financial capabilities.
The best buyer is not always the most apparent or the closest one. The best counterparty for your company could be, for example, from an adjacent sector located on the other side of the world.
Sometimes, one of your suppliers might be your ideal buyer; if he buys your company, he will be able to vertically integrate into the sector and have direct access to relevant clients. As such, a company of automobile components selling only to second manufacturers might be interested in vertically integrating upwards by buying a client’s company that sells directly to brands.
If they are interested in guaranteeing a secure supply and the ability to control prices, one of your current clients could also be a potential buyer. We have seen this with citrus product distributors who, if they don’t have their own production, are at the mercy of the farmer’s product auction.
A foreign company
The ideal buyer might be found abroad. Many multinational companies are looking to grow via entering new geographical markets. Instead of starting the activity from scratch, they prefer to save time and quickly get market share by buying local companies with local teams.
Naturally, we must also look at private equity firms eager to enter into growing sectors or industries with windows of opportunity.
Often, one of these firms buys a company so that it can be a platform to consolidate an industry through acquisitions. As such, it’s interesting to contact private equity entities that have already invested in a competitor either in the same country or abroad.
In some countries, almost 25% of company acquisitions rely on private equity participation, so if you plan on selling your company, it is a good idea to consider private equity as a possibility.
And what about your competitors? Having to compete with more competitive foreign companies forces many businesses to find ways to reduce costs via productive synergies or gain enough market share to generate economies of scale by buying similar companies.
A company from another sector
The range of possible buyers doesn’t end here. Market dynamism is also provoking the entry of new competitors coming in from other sectors.
So, what’s the ideal buyer for your company?
Methods to find the best buyer for a company.
First, it should be understood who and why a company can be of interest to a buyer. Once these concepts are addressed, it is time to get to know the best buyers and their motivations for buying the company.
Twelve concepts can help you identify companies that can be looking to acquire a business.
Synergies: A buyer wants to increase its strengths by acquiring a company, resulting in a merged entity that is stronger than the two separate businesses.
Diversifications: Buying to diversify has the objective of acquiring companies outside the buyer’s main business line to enter growing markets with high potential.
Access to relevant clients: Some buyers acquire companies to help them reach a specific client they could not get before.
Strategic Realignment: Many times, sectors change, and the companies try to adapt through acquisitions.
Fiscal Reasons: Some buyers search for companies with a high level of accumulated fiscal credit. The acquisition 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 companies are of high interest to the buyer because this allows the exchange of overvalued shares for shares with an average value.
Technological Change: Technology changes alter competitive factors and make acquisitions an 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 acquiring a company that complies with the new law.
Competitor Pride: Increasing presence, size, and remuneration might be the objectives of directors of big groups. Therefore, an acquisition strategy can be desirable for them.
Purchase of undervalued assets: Some sectors are in a downward cycle, making companies lose value. This is why it is essential to keep an eye on the sector’s tendencies, as it can be a clear sign that selling your business is the best option before the company loses 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 in strengthening their competitive advantage.
Keys to maximizing your price
The first method is to take advantage of the wave. There are periods in history where the interest rates are low, and the shares are listed in high multiples. They are the moments when people pay the highest prices for whichever company. An intelligent entrepreneur knows how to exploit this window of opportunity. He profits from the ‘wave of high prices‘ when the market is hot and sells at the best time.
These days, low-interest rates, high stock valuations, as well as an abundance of liquidity in the market are causing many international companies to take up positions in other countries.
Don’t get caught up in the paperwork. Some advisors can create encyclopaedic Sales Books for your convenience, explaining the sector and the history of the company. They can spend months preparing documentation for the company’s sale without beginning the search for investors – in many cases because they don’t know how or where to look.
The Information Memorandum is essential, but much more relevant is showing the interested buyer the company’s potential. It does not mean focusing on what you have done or earned in the past but showing them the company’s value in the future.
Never go out to sell, showing a valuation. If you present a valuation to the buyer without having had the opportunity to demonstrate the synergies and all of the added value that they would be receiving with the acquisition of your company, the buyer will be dissuaded before you have been given a chance to start the conversation.
It is much better to present the company and its capabilities, understand why they want to buy it, calculate synergies, request offers, discuss the possibilities by supporting the value that you will bring to them, and make them compete with the other offers you have received.
Be pro-active. Many entrepreneurs wait for a buyer to surface without realizing that selling the company to the first buyer that appears lacks logic. What is the likelihood that this would be the best buyer or the one who would pay the most?
If you want to sell a company, don’t be passive. The best buyers do not usually spend time actively searching for companies to purchase.
The best buyer is not the one who seems the most obvious or the closest; it could be, for example, a company in a different sector but still related and located on the other side of the world.
Search for such a buyer, for your company, who has a lot of liquidity and with whom your company brings synergies, irrelevant of where it might be. If this potential buyer perceives true value, he will pay more for the company.
Use experienced advisors. When an interested buyer appears for the company, the entrepreneur, in many cases, will decide to confront the buyer and his advisors alone, without supporting himself with expert professionals. This translates into prolonged processes, complicated, stalled or collapsed negotiations, unnecessary advances and setbacks, and ultimately wasted time for both parties.
If you are interested in selling your business, contact us. ONEtoONE Corporate Finance provides advisory services to small and mid-cap companies. We help find, attract, and close deals with the buyer or investor who can pay the most, maximizing your company’s value.