An important question when you want to sell your business is to whom you want to sell. Potential buyers can be broadly classified into four categories. Each category has advantages and disadvantages, which, among other things, can affect the selling price.
What is right for you depends on your personal preference. What important aspects should you consider for each category in forming your preference and making your choice.
I Strategic party
A strategic buyer is usually a direct competitor or business with adjacent activities. These types of buyers can generally realize synergy benefits. As a result, a business sale to such a party can usually achieve a higher transaction amount than the other alternatives.
If a strategic party is of any size, it often has sufficient cash flow to pay the purchase price directly to the seller on takeover date. Of course, the buyer may still want to pay a (limited) portion of the purchase price at a later date or even make it contingent on the outcome.
II Management or family
When selling a company to management (management buyout or MBO) or to a family member, it is very important to assess the suitability and capabilities of the acquisition candidate.
As a rule, management or family members cannot realize synergy benefits, which will normally lead to a lower transaction price compared to a strategic party. In addition, other factors play a role especially in family sales that may affect the transaction amount.
Often the management or family has limited liquid assets. Also the bank will normally not want to finance the entire purchase price. To finance the remainder, the seller is often called upon in the form of a subordinated loan. For transfers within the family, the tax-favorable business succession facility could be used.
III Management buy-in candidate
A management buy-in is the sale of a business to a (usually) experienced manager who opts for independent entrepreneurship.
Also an MBI candidate usually cannot realize synergy benefits. This will normally result in a lower transaction price compared to a strategic buyer. Depending on the financial strength of the MBI candidate and the chosen financing structure, you as a business owner will be paid in full or in part on acquisition date.
IV Investment or private equity company
The synergy to be gained from selling a company differs from case to case. If the business is continued independently, there are no synergy benefits. If the financial buyer can merge your company with businesses from its portfolio, it may be possible to achieve synergy.
An investor often comes on board when there are strong opportunities for growth or when the company enters a new phase and a new plan is needed to remain "successful" (e.g. professionalization, internationalization, etc.).
If you as a business owner proceed with the investor as a partner on board, you can already remove some of your equity from the risk at the time of the transaction. The remaining equity stake may be even more interesting than the first sales tranche due to the growth plan.
In conclusion, it should be emphasized that none of the above categories is necessarily better. In addition to the effect on the purchase price and the method of financing, there are obviously many other issues that are important. In addition, the feeling you have as a business owner with the potential buyer is especially important.
