Every company we sell inevitably has a range of potential suitors, and owners need to choose what “kind” of buyer they want to accept. Two of the major categories of buyers we almost always deal with include what we will call “strategic” buyers, and “equity fund” buyers. The commonly referred to “strategic” buyers are usually large companies who hope to grow existing volumes by acquisition. The “equity fund” buyers are entities with investment capital at the ready, to acquire new companies. In some instances, buyers have unique make-ups that cause them to look a little bit like a blended type of buyer, with some pieces of the commonalities of each. However, in taking an overall look at the common benefits and common disadvantages of each, sellers usually have to wrestle through the following:
Equity fund buyers, which have EXPLODED in both count and in aggregate principal managed in the past 20 years, normally seek to invest in a company with intent to hold it for maybe four to seven years, and then to re-sell. They typically are receptive to (and in some cases even require) a share of owner re-investment beside them, as you move forward together post sale. Owners also are commonly wanted to continue running the operation post sale – at least for a few years, and through the time of transition for a replacement CEO trainee. Such funds look for and appreciate the areas of high skill and optimum effectiveness of their holdings and work enthusiastically to help and to support operations in their weaker elements.
Strategic buyer acquirers are commonly much more focused on the core nature of the operation to be purchased. They look with intense gusto at those companies which might add materially to their ownership prowess within a given product “space”. They hope for additions which might offer access to an expanded range of customers due to superior reputation within a specialized segment. Strategic buyers often seek the chance to buy 100% at the date of close and may pay slightly more than the equity fund participant. (However, in recent years, equity fund buyers have learned to compete with gusto, and in some cases are absolutely as competitive as strategic buyers.)
We have offered almost every company we have sold to date to both equity fund buyers and strategic buyers. Just looking at transactions over the past 10 years, we have heard comments from sellers about their decisions and about their choices, as follows:
Buyers who chose equity fund suitors:
Plastic Engineering and Prototypes- We wanted to remain in the same geographic area, and we wanted to offer continued chances for growth within our own core staff. Pricing we achieved was solid and competitive, and we (two owners, who owned together) really enjoyed continuing the operation, with help and nurturing from our new outside investor “partners”.
Logistics Service Company- There really were not a lot of traditional “strategic” buyers in our space. I wanted to retire, but the equity bidder who was top bidder on our deal, was happy to let me step aside, as long as I helped train my replacement. I still serve on the company’s Board, and I still hold a small minority piece (around 5%), which is great. I’m enjoying watching them grow!
Buyers who chose strategic alternatives:
Packaging Products- I really wanted to be “free” post-sale, and my buyer supported that target.
Employer Services Provider- I felt more secure selling to one of the other real “players” in our space. They understand the industry, they offered growth and support to my people, and they actually helped me ratchet up public opinion of our company’s capabilities, even better than such opinion was before.
The buyer who looks and “feels” like a blend:
Plastics Injection Molder- We actually sold to an equity fund owner, but their experience in our industry, and their comfort with our technologies was terrific! They even imported a few key people from other companies they owned, to make us even stronger for the future. (We’ll call this one a “blended” buyer – investment capital strategically set aside to do acquisitions, but, in this case, experience with roughly 15 other similar plastics companies in their history.)
Distinctions between various alternative buyers may be made on the basis of price, on the basis of perceived strengths that the buyer may bring to the seller, or in some cases simply from the apparent ease in process, and the perceived clarity and certainty of the deal.
The strongest selling process offers a range of alternatives for sellers to select from. A strong comparison of assorted alternatives gives the seller maximum freedom in designing his exit. This one time effort to exit successfully is worth the time and effort. Know your alternatives and pick the “fit” that’s perfect for your situation.