How to Sell Your Business, page 4

Reasons for Selling, continued

Buyers will want to know why you are selling. (If it is such a good thing, why ever would you want to part with it?) Your story about why you want to sell thus becomes an important part of the sales collateral (in addition to helping you figure out which terms are most important to you).

Oddly enough, it is also important for a business seller to understand why a buyer wants the business as part of the process of qualification and structuring a deal that will work for both sides (for more on this, see Researching Potential Buyers and Negotiation Tips later in this barticle).

Strategic Versus Financial Sales

Strategic purchasers, or acquirers, are those who have an interest specifically in your company. Perhaps your product line can be sold through their existing distribution channel, or perhaps your company makes a product that is a component of the strategic acquirer’s product. There are many variations on this, but typically strategic buyers are customers, competitors, or suppliers.

Financial acquirers have no particular interest in your business except as a means to make money. Once again, there are many variations. But a typical financial buyer is in the business of buying businesses and is primarily interested in the financial health of your business. Often, financial buyers will buy businesses with the intention of enhancing value and then reselling.

You can realistically expect that a strategic acquirer will pay more for your business than a financial buyer. The strategic fit is worth something to this kind of buyer in addition to the implied value of the acquired company based on cash flow. (In the limit, a strategic purchaser might acquire a crucial supplier with negative earnings just to keep the supply chain humming.)

While you can get more money from a strategic acquirer, there are far fewer strategic than financial buyers out there. (The pool of strategic buyers for a given company is more or less limited to the competitors, customers, and suppliers. By contrast, there are tens of thousands of prospective financial acquirers.)

Another drawback to strategic acquirers is the potential risk of disclosing confidential information about business practices to competitors, suppliers and customers.

Continued next page

TOC || Page 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | More