The sale of a business is a long process, and requires a deep understanding of the sector and the company. In many occasions, finding the most suitable buyer is not only finding the one that pays the highest price, but also the one that best treats the stakeholders in the future, i.e., its employees, suppliers, customers, brand reputation, etc.
When faced with the question of where to find the best buyer, the first thing we need to understand is the reasons for the sale. This is a key question that will guide us in one direction or another. Because depending on the reasons, we will look for a financial buyer or an industrial buyer.
Financial buyers (venture capital or private equity firms) are only interested in companies with a considerable size, from 1-2 million euros EBITDA, although the largest number of financial investors are in the range of 3 million euros or more. The only objective of these buyers is to obtain financial profitability and they have little involvement in the management of the company, which implies having a good management team in place to manage the company during the 5 years or so that they will be in the shareholding.
These financial investors are also interested in smaller companies, but only if it is for one of their portfolio companies, and with which they are interested in carrying out a buildup or add on operation, i.e. buying a company to integrate it into a portfolio company to make it larger, generate synergies and add value.
Industrial buyers are companies that already have a similar activity and are looking for inorganic growth. This is a long-term oriented buyer. They do not want to buy in order to sell after 5 years. They know the sector and are looking for a strategy that generates value in their existing business. They may be interested in buying a product they don’t currently have, or in having access to a customer or a particular sub-sector, a channel, etc.
Normally, financial buyers tend to pay a lower price than industrial buyers, since they do not have a vocation for permanence, they will demand a very high profitability. The industrial buyer has a strategic vision of long-term growth. The financial buyer basically wants to buy at a certain entry price, and sell at a higher price, doubling at least his investment over a 4-5 year horizon.
As we have mentioned, an advisor should have a good understanding of the reasons driving the owner of a business to sell it, the strategic vision behind the decision to sell. In this sense, the main reasons for a sale are usually: (i) retirement and lack of generational succession in the business, or simply lack of ability and desire on the part of the next generation; (ii) the need to undertake new investments, without sufficient financial capacity to do so. Currently, in most sectors a concentration process is taking place, and companies are becoming larger and larger; (iii) sales and results are in continuous decline, and the owners do not see themselves capable of improving the situation; (iv) different points of view of the existing owners, it is very common in companies managed by a second generation; (v) desire to disinvest in the company to focus on other more profitable businesses.
Depending on the reasons for the sale of the company, the advisor will have to look for a financial or industrial buyer. And in the process, he will have to take into account who the management team will be, and whether they should have a minority shareholding in the future project. This circumstance will also be a key element to be considered by the potential buyer.
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