Who Will Buy Your Business - Part 3
Financial and Strategic buyers are generally more sophisticated buyers who are looking for an ROI in excess of 25-35% per annum. Financial buyers include Private Equity Groups (PEGs), large pools of capital collected in a Fund and used to invest in Private companies. While the Wall Street Journal is peppered with stories of super-PEGs paying billions of dollars to take iconic public companies private, we are concerned with the many PEGs that invest in smaller, middle-market companies. PEGs will often purchase a business in a given industry to be used as a platform company, then look to acquire add-on companies that are synergistic with the platform. These add-ons can sometimes be as small as $2 million in revenue. PEGs need not be local to acquire a local company. While there are several Boston and Providence based PEGs interested in Massachusetts companies, there are many more PEGs as far away as Chicago or San Francisco looking to buy companies here as well – as long as the target company matches their investment criteria.
Strategic buyers are usually companies operating in the same industry: competitors, suppliers, or even customers. These buyers are looking for cost or revenue synergies – areas in which the combined entity can increase its cash flows to a greater level than the two entities could achieve separately. For this reason, strategic buyers are most likely to pay a premium over what you may think your company is worth. As we noted in the above paragraph, PEGs – traditionally Financial buyers – are acting more like strategic buyers in regards to how they evaluate companies.
Finally, it is worth noting that PEGs (and sometimes Strategic buyers) love to partner with experienced owner-managers and purchase a piece of the company. Usually this is a majority purchase allowing you to keep 20-40% of the company. This is a great option if you want to take some of your cash off the table but you aren’t ready to leave the business yet. PEGs will want to grow the company with you, and then in 5-7 years sell it (or IPO). In many cases the business owner makes more when they sell their minority stake than they did the first time around.
Tom Gledhill has over 35 years founding, building, buying and selling companies. He is a partner in Delta Capital Group, a Business Sales and Acquisition firm specializing in the preparation and sales of companies in the lower middle market with revenues of $1 Million to $20 Million.
For more information on preparing and selling your company please visit: http://deltacapitalgroup.com
