To sell your business at a higher multiple of its revenue, you must reach out to as many qualified clientele as possible. There is a risk of breaching confidentiality by apprising about your business to all the potential buyers. This can be mitigated by applying the best business practices in place.
Many sellers make a mistake of waiting for the best buyers for their business. This is a flawed methodology. Instead, you should run a process of outreaching to them. To optimize a business deal, you should contact multiple buyers at one time. It is because negotiations with just one buyer in isolation always suit the buyer. It results in a proprietary transaction at well below market valuations or, in other words, at a compromised price.
You may not be able to access a wide range of financial and strategic buyers without the help of an investment banker. It is essential to work with one who manages hundreds of buyer relationships. You should work with an investment banker who identifies and evaluates a vast network of buyers and shortlists the ones that fulfill each criterion laid down by the seller. This would ensure confidentiality, save valuable time, and help you attain a possibly higher price.
Buyers tend to make shallow judgments about your company at first glance. These judgments are nearly impossible to override. You can use analytics like graphs and charts to provide a brief, attractive snapshot of the profitability, financials, and other vital aspects of your business. This could be complemented with a detailed report that captures all the business complexities.
Business people should be well-versed in touting the strengths of their business. Still, it is important to tailor this strength according to the type of buyer you are conversing with. It is because each buyer has a unique approach and gets triggered by a different variable. For instance, a strategic buyer will examine a distinct aspect of the business as compared to a private equity group, which will look to increase EBITDA.
Moreover, it is advisable not to conceal any weakness your company may have. In today’s day and age, buyers analyze every micro bit of the business. Buyers will not agree to buy without due diligence, so they are highly likely to uncover any weakness you are trying to hide. You can ask your investment banker to craft a thoughtful commentary on weaknesses like management gap, single-source supplier, or customer concentration. This will pacify the buyer’s concern and mitigate its impact on valuation.
It is crucial to target a purchaser whose objectives are aligned with yours. For this purpose, you must take the services of a skilled M&A advisor and investment banker. The investment bank you are working with should serve your (seller’s) interest rather than its own. In cases when an investment bank is geographically limited, or mostly transacts with private equity funds, it may run into a conflict of interest when the best buyer is outside the circle of favored buyers.
You can adopt any of the following marketing approaches to communicate what your business has to offer to the parties who have the financial wherewithal along with the willingness to buy your business. Using all of these approaches simultaneously will help you maximize business valuations.
In this approach, you can compile a comprehensive list of people who fall into the above-defined category. This can be done by looking into M&A databases or conducting secondary research on the industry. A combination of both can also be executed,
This is an old-fashioned way to distribute the teaser of your business through a relevant online social network of M&A participants. Unlike in the other approaches, the M&A advisor will not critically examine every prospective purchaser before reaching out to him. This may put the quality at stake. Moreover, you may never be able to craft a list of all the potential purchasers despite the amount of diligence you put into market research. Some people having an interest in your business may lack the financial capacity when you are marketing, or it can be the other way around. However, this approach does help to uncover covert buyers
Intermediaries like investment bankers, M&A professionals, lawyers, or financial bankers can introduce your business to several qualified buyers. Many M&A firms avoid this approach due to a breach of confidentiality, but this approach augments the chances of success because it involves several M&A participants.
When you are selling something you have built yourself, you should look to target a buyer with a somewhat similar mindset to yours, rather than to attract those who don’t. This targeting should, however, be from a broad base of potential buyers.
Oak Business Consultant is specialized in providing consultation on these matters. We help business to build a robust financial model and business plan along with Pitch Deck. Visit our website to consult with us for free before approaching buyers.