Planner: Sell to a strategic buyer

Here are some ideas and talking points to help you connect the planning dots with your clients. There are three Planners in this series, each outlining different ways a business owner client could transition out of a leadership role and move a company to new ownership.

Strategic buyers are generally a supplier or a customer of your business.

If they think about buying you, they’ll be looking at whether your company will open a new market for them or has intellectual property they can use. They’ll also be looking to realize economies of scale.

They believe that owning you will boost their business, perhaps by providing horizontal or vertical integration.

Pros

• Price advantage. The strategic buyer wants to take advantage of synergies, so they’ll often pay a premium. If you make soap and a potential buyer makes chemicals, input costs for the soap factory go down and they have a captive buyer. Plus, opening the sale beyond family, employees, and competitors, simply means there are more buyers.
• Your risk factor is nil. The buyer often has the financial wherewithal to pay you off right away, so no exposure to continuing risk.
• Seller gets a clean break. The buyer will want access to the seller for at least 12 months, after that, you’re out.

Cons

• It’s a slower process. Steps include readying the business for sale, identifying and approaching potential buyers, taking bids, and due diligence.
• Word could get out. If competitors hear you’re shopping your business, it can disrupt contract negotiations.