Many businessmen sell their company to the first person who gives them an offer. Big mistake. If you have spent many years building a business, looking after every detail, and creating value, don’t just sell to the first person willing to buy from you. Plan the sale and look for your ideal buyer. Of course, finding the ideal buyer requires a lot of effort- it involves using a strong search methodology and combing the market for all possibilities. But in the end it will be worthwhile because the difference in price will be substantial.
So how do you start looking?
Into M&A´s world, to determine who the best candidates are, we use four common tools: the SWOT analysis, the “Experience Curves”, or the Calder analysis. Every year there are hundreds of M&A transactions worldwide. Normally when one person buys, it’s very likely that they will buy again. Because of this, we keep a database of all buy/sell transactions to know which companies are actively buying. We also keep a record of companies that have stated they are interested in growing via acquisitions. This analysis lets us see when an unlikely transaction has happened. This is useful because we can get an idea of possible buyers who we might not have thought of previously.
Given that you know your sector so well, you might be inclined to think that no one better than you can know your company’s ideal buyer. It’s even possible that a company has shown interest in buying your company. But how can you be sure that there aren’t other companies who can make better offers if you don’t research?
Sometimes, one of your suppliers might be your ideal buyer; if he buys your company he will be able to vertically integrate himself 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 as well as 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
On other occasions, the ideal buyer might be found abroad. Many multinational companies look to grow via entering new geographical markets. Instead of starting the activity from scratch, they prefer to save time and to quickly get market share by buying local companies with local teams already in place.
Naturally, we must also look at private equity firms. This is a group eager to enter into growing sectors or sectors with windows of opportunity.
Often, one of these firms buys a company so that it can 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 purchases rely on the participation of private equity, 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? Facing the tightening of margins is leading to many companies having to compete with more competitive foreign companies, so they need 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.
If you are interesting in sell your business, contact us. Calder Associates 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, maximising the value of your company.