Selling a business is not just a usual transaction, it requires a very formal and concrete approach when it comes to selecting the most qualified buyer for the business. After all, the business is an outcome of years of collective efforts and endless hard work. A buyer cannot be anyone and has to be the best of the lot, in fact the perfect fit. The buyer who settles at the maximum value is not always the perfect fit. Yes, it’s true and this is not amusing at all. There are various sentiments attached with fixing the right value. However, the value of a business depends upon the negotiation abilities of both the buyer and seller in a transaction.
Who are the buyers?
Generally the potential business buyers fall into one of the three buckets:
- Strategic buyers
- Financial buyers
- Operator buyers
They are the highest paying buyer group who acquire the company with the foresight of improving their own fortunes. The vision behind the acquisition is to bring synergies of scale and reduce competition by accessing the wider customer base. Strategic buyers include competitors, suppliers and customers.
The financial buyer includes private equity funds like venture capital firms, hedge funds, family offices and High net worth individuals. They are in the business of making investments in companies and generating profits from their investments.
These include entrepreneurs and managers who see the business as a gateway to secure a job and income or lifestyle. Operators are least experienced for securing ideal financing, but this doesn’t necessarily exclude them from being the right buyer.
Approaching the identified buyer:
There are several associations and listing platforms which help to integrate the buyers and sellers. However, engaging the M&A advisor or an investment bank enables to bring its expertise of evaluating potential buyers. It is necessary to understand the needs of the buyer completely to match its requirement with the competencies of seller. As an advisor, the M&A expert supports the negotiation between the buyer and seller to reach a consensus.
To effectively complete the potential sellout, it is necessary to maintain confidentiality of the transaction in order to avoid the potential threat of leakage of material information.
Following are some aspects concerning a seller directly:
Maximization of shareholder value:
Shareholders’ value depends on analyzing different options for a transaction. The Industry’s best-practice for divestments require sellers to:
- Improve business operations and financials prior to sale.
- Analyze the objective of various buyers and assess which deal structure may provide maximum value.
- Execute the strategy by fixing or exiting assets or business
Preparation for an effective exit:
- The asset should appeal to as many credible buyers as possible. A business plan for the sale needs to be supported by detailed projections, accurate data and a strong financial model for the business.
Achieving the right value:
- Support the sales process in alignment with the specific business goals and strategies.
- M&A advisor plays a key role to discover the right value for the seller and the buyer
- The rules of engagement that outline how the parties will interface and what information will be made available during the pre-close phase. The Share purchase Agreement (SPA) should set out timelines for the tasks, deliverables and responsibilities for closing the deal, and developing the separation plan.
Preservation of value:
- From mergers and acquisitions to divestitures, the key to any transaction is to realize its full expected value. And that means being able to answer critical questions at every phase of the transaction lifecycle.
- Identifying the synergies early on in a transaction helps to capture and create value for the combined entity.
Considering the state of the global economy and the increase in number of M&A deals in the recent past, it is evident to understand the importance of right buyer of the business who can maximize the value of the existing resources. Otherwise there are enough instances where the buyers failed to sustain the buyout.