Business Exits: Who buys companies and how do we find them?

Selling your business is a significant decision that involves finding the right buyer who can see the value in your company. Identifying these potential buyers requires a strategic approach, considering various macro factors. In this article, I will guide you through the key considerations that can help you pinpoint the most suitable acquirers for your business, ensuring a smooth and successful transaction.

Industry & Geography

Geography

The first factor to consider when identifying potential buyers is geography. While there are global companies that acquire businesses worldwide, it’s often practical to focus on geographically proximal buyers, especially for middle-market and lower middle-market companies. Local or regional buyers are more likely to engage in a deal due to logistical convenience and market familiarity.

For instance, the likelihood of a Japanese acquirer buying a small business in Oregon is lower compared to a private equity firm based in California or Colorado. Geographical proximity can facilitate easier communication, due diligence, and integration processes, making the transaction smoother and more efficient.

Industry Experience

Targeting buyers with relevant industry experience is crucial. Buyers who are already familiar with your industry are more likely to understand and value your business appropriately. They have the knowledge of market dynamics, operational challenges, and growth opportunities, which can lead to a smoother transition and better valuation.

When potential buyers have experience in your industry, they speak the same language, making negotiations and post-acquisition integration more seamless. This familiarity reduces the learning curve and enhances the probability of a successful deal.

Offering & Sizing

Direct Product and Service Correlation

Finding buyers whose existing operations align directly with your products or services is another key consideration. Buyers who are already doing the same or similar work are likely to see immediate synergies and efficiencies post-acquisition. This alignment increases the attractiveness of the deal for both parties.

For example, if your company manufactures a specific type of industrial equipment, a buyer who already produces similar equipment will find it easier to integrate your operations into their existing processes. This direct correlation can lead to cost savings, enhanced capabilities, and a stronger market position.

Adjacent Products and Services

Expanding the pool of potential buyers to include those offering complementary or adjacent products and services can also be beneficial. Buyers with adjacent offerings can create strategic expansions and add value to the acquisition. This approach broadens your search criteria and identifies more potential buyers who may find strategic value in acquiring your business.

Consider a pool cleaning company looking for a buyer. A company that provides pool supplies, installation, and maintenance services could see the acquisition as a way to offer a comprehensive suite of services to their customers. This complementary fit can drive synergies and create a stronger competitive position in the market.

Size

The size of the potential acquirer relative to your company is an important factor. Ideally, you should look for buyers who are not vastly different in size from your business. Buyers with the necessary resources and scale can effectively integrate and benefit from the acquisition.

For instance, if your business generates $10 million in EBITDA, targeting a buyer with $100 million in EBITDA makes sense. They have the capacity to manage the acquisition and can leverage their existing infrastructure to integrate your operations. On the other hand, targeting buyers that are too large or too small may lead to challenges in integration and alignment.

Insights & Applications

Best Acquirer Insight

In many cases, the best acquirer is someone already familiar with your business or the industry ecosystem. Strategic buyers or private equity firms with relevant portfolio experience are often the most suitable candidates. They can see beyond immediate financials and understand the intrinsic value of your business.

Buyers who are already involved in the industry, or have been in the past, bring a level of fluency and familiarity that can facilitate a smoother transaction. They can quickly grasp the strategic fit and potential synergies, making the acquisition process more efficient and effective.

Practical Insights

To summarize, when identifying potential buyers for your business, consider the following macro factors:

• Geography: Focus on geographically proximal buyers for practical and logistical reasons.
• Industry Experience: Target buyers with relevant industry knowledge to ensure a smoother transition.
• Direct Product and Service Correlation: Look for buyers whose operations align directly with your products or services.
• Adjacent Products and Services: Consider buyers offering complementary or adjacent services to broaden your pool of potential acquirers.
• Size: Ensure the buyer is of a compatible size to facilitate effective integration and management.
• Familiarity with the Ecosystem: Prioritize buyers already familiar with your industry for a higher probability of success.

By focusing on these macro considerations, you can effectively narrow down your search and target high-probability buyers who are most likely to see the value in your business. This strategic approach ensures that you allocate your resources efficiently and increase the likelihood of a successful sale.

Conclusion

Identifying the right buyer for your business involves careful consideration of various macro factors. By focusing on geography, industry experience, direct product and service correlation, adjacent services, size, and familiarity with the ecosystem, you can pinpoint the most suitable acquirers and increase the chances of a successful transaction. Keep these factors in mind as you navigate the process of selling your business, and you’ll be well-equipped to find the best possible buyer for your company.