This is a guest post from Mark Wheeler, Solicitor at Barlow Robbins.
When looking to sell a business one of the most difficult challenges facing a business owner is identifying who to sell their business to.
Whilst professional advisors who specialise in marketing businesses are available, it is important for a Seller to understand who they can market the business to.
When business owners consider selling their business they often believe that the best source of buyer is a currently unidentified third party.
In reality, there are a lot of opportunities in selling a business to those already closely connected with the business.
Quite often a business sale can be to:
-a competitor within the same market;
-a customer or supplier who is connected with the business;
-the existing management team.
Each of these potential buyers create their own challenges and approaching them in itself can be an art form.
It is important to be prepared and acknowledge the challenges facing sellers in negotiating the best possible sale.
Competitors
A competitor may be seeking to grow their business within a market and they consider the acquisition of the business as an attractive prospect to gain additional market share.
Quite often business owners will be aware of competitors in the market who are looking to “buy to build”.
A sale in these situations is about making sure that you are in the right place, at the right time. This can be through being ready to sell (having complete pre-sale preparations) and being in contact with the right people (“keep your friends close, and your enemies closer”).
Customers and Suppliers
Customers and suppliers are often interested in investing in markets which offer synergies with their existing services.
There are often occasions when suppliers are interested in moving upwards in a distribution chain, for example, a manufacturer of a component seeking to acquire a customer whose as a manufacturer uses the component in manufacturing their own goods.
If a Seller can identify a customer or supplier who has interests that align with their own business, it is often useful for there to be a dialogue about a potential sale to test the water.
Existing Management Teams
The prospect of selling to an existing management team can be very attractive as it incentivises the existing management team to maximise the performance of the company even prior to the sale.
If the deal is correctly structured it is possible to link the continued success of the company following completion with the payments due to the Seller. This can be achieved through earn-out provisions and other similar deferred consideration elements.
Whilst it may not be necessarily possible to negotiate the highest cash payment upfront when selling to existing management teams, it is often not only a financial decision to choose this option, but an emotional one.
By selling to those already involved in the business a Seller can be confident that they are leaving the business in “safe hands”.
The future
Whatever decision that is made, the key to building a successful sale is to identify what the ultimate objectives for the sale and then deciding how best to structure the deal.
If you are prepared for the negotiations and have a structure in mind, you are in a better position to maximise your rewards.
At Barlow Robbins we are very experienced at helping Sellers negotiate effective deal structures and preparing a business for sale.
Should you require any more information please contact the Corporate Commercial team at Barlow Robbins.
