After you have decided to sell your business, you might ask yourself “who will buy it?”. This might be an important consideration because you want the business you have nurtured and grown over the years to go to the right buyer. Alternatively, you may just want to get the highest price possible. Different sellers will have different goals.

Buyers can be broadly classified into two groups; Strategic and Financial Buyers. Here is a brief overview of the type of buyers you may encounter.

Strategic Buyers

These are companies that are in the same or related industry as the business being sold. They are typically looking to expand horizontally (in the same industry and production stage, across geographies or product lines) or integrate vertically (up or downstream of their supply chain) to improve their operations. Objectives of such buyers would include expanding their market share or gaining access to new technology or intellectual property.

These types of buyers are more likely to look for businesses and/or products that can be integrated into their own existing operations and look to realise operational synergies and economies of scale. As such, strategic buyers often are willing to pay more than financial buyers.

Financial Buyers

These are buyers who are looking to make an investment in a business for the purpose of realising a return over a period of time, typically 5 to 7 years. Their goal is to identify businesses with growth potential and will look to help the business increase its profitability and cash flow by exploring new revenue streams and cutting costs, amongst other strategies. Once the profitability of the business improves, the financial buyer will look to exit the company in order to realise the returns from this investment. It is also not uncommon for financial buyers to use leverage (borrowed funds) to finance such investments in order to maximise their returns.

These types of buyers are more likely to look for businesses where operational efficiencies can be improved, or where the financial buyers can help realise economies of scale (either through their network or portfolio of other investments, or their industry know-how). Some examples of financial buyers include private equity firms, venture capital firms, search funds, and family offices.

Conclusion

Different sellers will have different goals. As such, it is important to consider the motivations and capabilities of the potential buyer when evaluating an offer to purchase your business, and this starts with understanding the Buyer Universe for your business.