Types of buyers when selling your company
Who will buy your company?
There are several types of buyers that will be interested in your company when you are ready to sell. When the time comes to sell, you should already know who the best type of buyer will be for your company. First, you have to think about what you want to achieve. Do you want to maximize the value you will get for the business? Are there some people (like your children, family, or key employees) that you want to give an opportunity to run the company? Do you care about the brand and the way the company will be run in the future?
Determining which buyer type is best suited can often be an essential step in the process of selling a business. The CFIE M&A adviser can help you with selecting the most suitable buyer. Within the CFIE network, only competent consultants are available. Select your international M&A adviser for the best preparation to sell your company.
All these questions determine which type of buyer will be most suitable for your company. On this page, we describe the diverse types of buyers, their characteristics, and when you should choose each type of buyer. Visit the preparation for selling my business for other important aspects of the sale of your company.
Different types of buyers for your company
There are several types of buyers that exist in the market. Within these groups of buyers, there is still a large variety of companies. Allocating your possible buyers to these groups can give you an idea of who to pursue when selling your company. The list below starts with the family or children in the top position. This type of buyer is a ‘different animal’ in the list that often gets higher priority due to personal preferences. Selling to this group most often has no financial motives.
Different types of buyers for your company:
- Family (children)
- Strategic buyers
- Private equity (also with portfolio companies)
- Management or employees (MBO)
- Individuals (MBI)
Buyer for your business 1: your children or family
This item from the list is a specific category (your children or family) where you have personal reasons to sell your company. Your children or other family members are normally the first possible buyer for your company. If you have children and would like them to take over the company, you will have thought this through probably a thousand times already. You should not take this too lightly and be sure they are qualified in order to prevent disappointments at a later stage. Questions you can ask yourself are if you have tested their skills enough, is their background, motivation, and knowledge sufficient?
If you want your children or other family members to run your company after you, it is probably a good idea to have them work in summer jobs to get a feel for the company. Discussing as much as possible about their own career wishes is a good thing, so you can see if they are interested. Our advice would be to only put a relative in your position once you are fully convinced they have the required skills.
Buyer for your business 2: strategic buyers
Probably the type of buyer that will pay most for your company is the strategic buyer. This is the type of buyer that comes from your industry and can realize synergies when acquiring your company. Hence, a strategic buyer will most likely pay a premium for your company. They normally have the funds, at least in large part, available from their own resources and are less likely to have difficulty in raising financing for the acquisition.
When you are after this type of buyer, it is wise to ask for the help of an M&A adviser. Strategic buyers can be located in many countries across Europe. Hence, getting assistance in finding the right strategic buyer for your company is a logical step. Please contact us to know more about possible strategic buyers that could be interested in your company.
Buyer for your business 3: private equity
Private equity groups are financial investors. They receive funds from large investors like pension funds, insurance companies or wealthy individuals. These funds are invested by PE groups to acquire companies. The main objective is to make a financial return for the shareholders. Hence, private equity funds are very return-driven and focus on the cash flow part of the business. They will look at the amount of cash they will need to invest and the cash they will get out in five to seven years from now.
A financial investor can be a good partner if you need financial resources to grow your company. They can take a minority share and be a partner to grow your company together. Private equity groups normally have various portfolio companies for whom they look to acquisitions. Your company can also be a good target for a portfolio company of a PE group, who in that respect is like a strategic buyer. Many portfolio companies of private equity firms want to grow via a buy and build strategy so an appetite for acquisitions does often exist.
Buyer for your business 4: management or employees
Your employees can certainly be possible buyers for your company. This structure is often called an MBO (management buyout). For more information on this alternative, please check the section MBO. Maybe it is the management only, but it can also be a full group of employees that acquires the shares of your company. An advantage is that you have found your buyer directly. On the other hand, it is not likely that you will realize the maximum company value as a strategic buyer is more inclined to and capable of paying more. Arranging the financing will also be more difficult for employees. Especially for companies with a large size it will impossible for employees to realize the financing their selves. This presents an opportunity to reach out to buyer type number three, a private equity group, to help in financing the company and buy it together. If you really want to sell to your employees, this will work by using tools like a subordinated loan. In this way you leave funds in the company until a later time, the objective is to enable a buyer to arrange the financing. However, the risk of receiving the payments in the future falls on you.
Buyer type number 5 for your business: individuals (MBI)
These days, individuals from outside the firm are often interested buyers. This structure is called a management buy-in (MBI). Management that has run a company in the past and has a good track record often wants to start independently and is looking for an acquisition itself. These people want to buy into a company, own the shares, and grow the company further. This type of buyer will normally not pay the highest price for your company. Mostly, their financial means are modest compared to strategic buyers. Further, they cannot realize synergies to the level a strategic buyer can. The risk is somewhat higher for the seller as they are not sure how well the individual will run the business. Nevertheless, it is a possibility to sell your company and one that we see happening increasingly often in practice. For more information on this alternative, please check the section MBI.
Information about types of buyers
Feel free to contact us if you have any questions concerning the possible types of buyers for your company. We have advisers that can give you a good idea of who the best buyer for your company will be. We are happy to share this knowledge and give you some free consultation on what to consider when looking for the right type of buyer for your company.
If you have already decided to sell your business, we suggest reading the costs of selling a company, so you can make a budget. It also gives an overview of the money that you will need to be prepared to spend.