Selling a business is a daunting task.
Where do you start, especially if you’ve never gone through the process before? I’ve rounded up three proven M&A truths that are constantly echoed in the mergers and acquisitions industry.
If you’re a private business owner looking to exit your company, heed these words as you dive into the lengthy process.
M&A Lesson 1: One buyer is no buyers.
“Wait a minute,” you might be thinking. “If someone is interested in my business, I should be ecstatic.”
Yes, it is good to have an interested party. But when you only have one interested buyer, you could:
- Sell to the wrong buyer.
- Allow them to strong-arm you into a deal structure you don’t like.
- Leave money on the table.
When selling a business, you want to create what’s known as a limited auction. This is when two or more interested parties bid against one another for your company.
In a limited auction, the price of your business increases, allowing you to walk away with more money than if you just had one buyer.
Yes, one interested party is good. But having multiple buyers is even better.
M&A Lesson 2: “The buyer rarely buys what the seller thinks he’s selling.”
Management guru Peter Drucker is to have famously said the above quote, and it couldn’t ring truer in the M&A industry.
Here’s the problem that many run into: What you as a business owner consider most valuable about your business is not necessarily what a buyer or strategic acquirer may find as valuable. To get top dollar, you must put yourself in your potential buyer’s shoes and figure out what they will benefit from the most if they buy your company.
Oftentimes, strategic acquirers will want to purchase a company because it complements an existing business they own. In this case, certain things like a patented process or regional territory could be worth a premium to the buyer.
Truly understanding what buyers are looking for is such a mind shift for most private business owners that M&A advisory firm Generational Equity has crafted a complimentary whitepaper about how to identify intangible assets to get maximum value out of your sale when marketing your business.
And Lesson 2 brings us to…
M&A Lesson 3: Buyers buy future earnings, not past.
It’s great that you’ve grown your business from nothing into the empire that it is today. That’s a remarkable feat that not everyone can achieve.
While buyers will study your past and use it to determine the stability of your business, they are chiefly concerned with the future. They’re interested in how your business will help them after they close the deal.
Canyour company help increase the buyer’s revenue stream post-acquisition? How will your company help them make more money in the future? These are the questions that buyers will concentrate on. So be prepared to explain your past, especially any fluctuations in revenue or earnings, but be ready as well to sell your future.
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Selling a business is an experience of a lifetime. Keep these three sayings in mind as you embark on your adventure.
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Want to learn about common mistakes business owners make when selling a business? Read Generational Equity’s complimentary whitepaper, 5 Mistakes To Avoid When Selling Your Company.
