Who is buying your business?

If we consider the main options for business owners looking to exit their business being either transferring it to a family member, selling to a partner, employee or management team, selling to a third party or closing the business down, we can quicky identify that the selling to a thrid party is the most uncertain of all the options.

Who would want to buy my business? Will they keep the existing employees? Are they going to pay me what I want for it? How long will it take to find a buyer?

The questions can keep going.

Perhaps it will provide additional insight to paint a general picture of the buyer types in the market. What this does is give us a better idea of who to target and why your business may be suitable for them. When we get approached by interested parties seeking to acquire the business, it also gives us an idea of what may be important to them and how to approach the process to get the best outcome.

1. The Strategic Buyer

Who They Are Strategic buyers are often companies, collectives, or businesses within the same or related industry looking to acquire another business to enhance their own. They’re not simply interested in taking over; they’re keen on expanding their market share, streamlining operations, or enhancing capabilities by acquiring a well-suited business.

What They Buy (and Why) Strategic buyers typically target businesses that offer:

• Synergies: Businesses that complement their existing operations, bringing in assets, resources, services or intellectual property they don’t already have.
• Market Access: Companies that can help them quickly expand into a new market or region.
• Cost Savings: Acquisitions that could reduce operational costs through economies of scale, like consolidating suppliers, centralising administrative functions, or increasing sales opportuities.

What This Means for the Exiting Owner For the exiting owner, a strategic sale can mean:

• Higher Valuation Potential: Strategic buyers might pay a premium because they see the long-term value in the synergy and the value of the efficiencies.
• More Complex Integration: These buyers may want significant input on transition details to ensure smooth integration with their existing operations.
• Possible Cultural Shift: Employees may experience changes in company culture as operations are merged or streamlined.
• Being vulnerable: There is little chance of selling a secret and owners must be comfortable with the industry and their competitors being aware that their business is up for sale. Once word gets out, there is a chance that employees will find out so internal transparency is essential.

2. The Financial Buyer

Who They Are Financial buyers are often private equity (PE) firms, investment groups, or individual investors looking for returns on their investment. They typically hold the business for a few years, aiming to increase its value (reduce its expenses), combine it with other businesses to form a portfolio and sell it at a profit later.

What They Buy (and Why) Financial buyers seek businesses with:

• Strong Cash Flow: A steady, predictable revenue stream that provides reliable returns.
• Growth Potential: Opportunities to scale the business and improve profitability through operational efficiencies, cost-cutting, or new revenue streams.
• Minimal Required Overhaul: Many financial buyers prefer businesses that don’t need significant restructuring, allowing them to enhance value more easily.
• Management teams: Most often PE are looking for companies that have established management teams in place that are willing and able to continue business operations post sale.

What This Means for the Exiting Owner If you’re selling to a financial buyer, expect:

• An Emphasis on Profitability: Financial buyers are often laser-focused on numbers and may expect cost-cutting or process changes to boost profits.
• Possible Partial Retention: In some cases, financial buyers might ask the owner to retain a small ownership stake or stay on in an advisory role during the first few years.
• Medium-Term Hold: They’re typically looking to exit within 3–7 years, which can impact long-term decisions and investments they’re willing to make.
• Terms and/or Value: Earn outs, transition plans, working capital and working capital pegs are all things owners should consider and be aware of
• Confidentiality: PE firms may be acting on behalf of a group of existing companies they have within a 'portfolio' which could mean that they are aggressively targeting that industry sector. We've had situations where these PE firms then use the information they obtained during their initial interest to target suppliers and/or competitors.

3. The Indivudual or Entreprenuer

Who They Are These buyers are often aspiring business owners, career-switchers seeking independence or burnt out corporate citizens seeking more control over their life. Many are interested in running a business they can grow and operate hands-on, often seeing the acquisition as a way to pursue a passion or fulfil a career goal.

What They Buy (and Why) Individual buyers usually look for:

• Established, Proven Businesses: They often seek stable, well-run businesses that don’t require major restructuring.
• Manageable Size: Small to mid-sized businesses are preferred, as they’re easier to run independently.
• Lifestyle Fit: Many owner-operators want a business that aligns with their lifestyle, interests, or personal values.

What This Means for the Exiting Owner Selling to an individual buyer might mean:

• Personalised Transition: These buyers often value mentoring from the previous owner, so you may have the opportunity for a more gradual handover.
• Lower Financing Capacity: Individual buyers may have limited access to capital compared to larger financial or strategic buyers, which could affect the final sale price or require seller financing.
• A Focus on Stability: Owner-operators are often less interested in major changes, aiming instead for stability and continuity, which can be reassuring for employees and customers.

Final Thoughts: Finding the Right Buyer for Your Business

Understanding these buyer personas can help you set realistic expectations and find the right fit. Selling your business can be a complex process that is full of emotion and ensuring that you are dealing with the right type of buyer can save you plenty of time in DD and make the process more enjoyable.

If you are an owner that is planning ahead, understanding the buyer personas can definitely help you to prepare your business in the lead up to the sale in a particular way.

• If maximising valuation is your goal, strategic buyers may offer a premium.
• If you’re seeking continuity for the business, individual buyers might be your best bet.
• If you prefer a quicker, numbers-focused sale, financial buyers could be ideal.

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