There are two main considerations when thinking about who would and could buy your business.
The first is your management team. The second is the size of your business.
Why are these the two main considerations?
They’re the first two aspects of the business a buyer will go to in order to evaluate.
Your management team and the size of your business matter to buyers.
When evaluating your management team ask these questions:
- How willing is my management team to lead the day-to-day operations of the business?
- How capable is my management team in leading the day-to-day operations of the business?
- How involved is my role in the day-to-day operations?
If your management is willing and capable to lead and your role has low day-to-day involvement, an investor-type buyer would likely be interested in your company.
Examples of investor buyers include:
- Family offices
- Private equity
- Strategic buyers
- Investor buyers need some level of management to be retained after the ownership is transferred (and prefer the most complete management team possible)
- Buying and advising companies is their day job so they don’t have time to run your business operations
- It’s an added bonus to them if you have already stepped out of an operational role and into an advisory role – it would more closely mimic how they’ll function as owners
- Investors don’t base their purchasing decision solely on management team structure. These types of buyers are often willing to hire additional personnel if your current team isn’t up for the task or has some gaps
If you think your management team is best operating as it is or if your day-to-day role is highly involved, the buyer of your business is more likely to be an owner-operator.
Examples of owner-operator buyers are:
- Search funds
- Professionals with executive experience in a relevant industry
- Owner-operator buyers would step in to the operating role you’re leaving
- Seek $1-5M EBITDA companies
- Sometimes willing to relocate for the purchase
- Always expect to add daily value to the business through a management operating role. Your business would become their day job.
The second important consideration when asking who would and could buy your business is business size. Depending on business size the buyer pool will be different. Each buyer pool has different characteristics that are listed below.
|$0 – $750K Adjusted EBITDA||$750K – $3M Adjusted EBITDA||$3M – $20M Adjusted EBITDA|
|Buyer Pool Valuation Metric||Seller Discretionary Earnings (SDE) 0r Seller Discretionary Cash Flow (SDCF)||SDE/SDCF (But will call it a multiple of adjusted EBITDA)||Multiple of “true” EBITDA|
|Buyer Pool Size||Millions (Theoretically)||< 1 Million||< 10,000|
|Buyer Pool Experience||Amateur||Amateur to Professional||Professional|
|Buyer Pool Organization||Low||Moderate||High|
|Notes||It’s nearly impossible to know how many buyers in this space are real buyers||Many new entrants into this buyer market||Buyers always seeking opportunities – must invest their capital|
So now you have a better idea of who would and could buy your business. Historical data is good and the big picture is helpful but wouldn’t it be nice if the answer to “Who?” came with a name, job title, street address and phone number? Unfortunately, those specifics won’t come until you’re quite a bit farther down the sale journey. Take steps forward and you’ll continue to gain clarity in who you’ll get and, more importantly, who you want to buy your business.