Friday, December 20, 2013

Finding a strategic buyer

While everyone agrees it’s a good idea to “spit and polish” your business before presenting to potential buyers, not everyone understands why each buyer will view your business beyond the obvious. 

Enter a strategic buyer into the sale of business process and the scope of assessment evolves from the basic numbers and look of your business to include the “what if” scenarios. The “what ifs” can materially up tick the value of your business - a strategic buyer could be willing to pay more for your business. The challenge for the advisor is to determine which “what if” are going to drive the deal over the goal line. 

To understand the process better, you need to change your view of your business to the buyer’s “what if” perspective. While each buyer has their own priority you can be proactive by trying to understand what the buyer is looking for.
The baseline value of your business as it stands now is reasonably straightforward. Synergies going forward that increase value: 

Operationally
What are the financial impacts from combining the operations? Share one facility instead of two? Share administration? Keep best personnel for each task and release needless duplication? Does the new model keep existing expertise involved and excited about the future? Can you attract higher profile skill sets? Does this lead to effective consolidation of manufacturing or packaging or assemblies or servicing? What are the impacts on distribution or supply and service models?

Marketplace
What are the financial impacts from combining business names and market presence? Qualify for larger projects for greater opportunities?  Maintaining only the best sales and business development team? Consolidating client lists and contact regimes for increased revenues with less time and cost? Focusing on business offerings with best margins? Refining the consolidated brand to move towards best in class image? Does this assist you to develop a dominant position within the market?

Financially
While everything suggested so far may improve financial results, what about the combined cash flows, asset backing, access to capital, access to investors, and enabling a higher rate of return for the new consolidated enterprises eventual divestiture? Increase buying power to reduce costs? Reduce operation cost by only maintaining the facilities, equipment, insurance, and services that contribute the most to the bottom line?

The list can be somewhat speculative and “touchy-feely” but as a business owner it’s worth the time spent preparing for a potential buyer to easily develop their “what if” models – you will attract strategic buyers and ultimately get a better deal.