What influences a successful business sale?
There are four ways to influence the sale process to ensure that a maximized sale price is achieved:
1. Utilizing bidder competition
Our process works so effectively that on average we identify 230 strategically motivated potential acquirers. By generating competition between these buyers for our client’s business, we achieve a sale price that is, on average, 2.5 times the lowest offer received equating to hundreds of thousands or even millions of dollars!
2. Being an active seller, not a passive one
The key to selling a business is to actively market and sell the product and service, which in this case is the company itself. Most business owners fail to realize this even though it is this activity which has grown and expanded their own businesses. As a result of this failure, when they first consider who best to assist in the sale of their business owners often look to their accountant or financial advisers (in fairness, there are often no obvious alternatives).This approach overlooks the simple fact that these organizations are primarily proficient in financial analysis or accounting, with only a limited, at best, skill in active selling and marketing. When selling your own products and services, you probably analyze data carefully, but primarily focus on selling day in and day out – it’s the only way to make progress and keep up with the competition. Unfortunately, the vast majority of “advisors” that sell companies, analyze the data, but are incapable of actively and passionately generating market enthusiasm for companies. They are, by nature, passive in their approach. If you cannot imagine your financial advisor or corporate accountant selling your products and services, don’t expect them to generate unbounded interest for your company.
We actively sell and market each of our clients’ businesses, ensuring that they are presented in the most professional and optimal way to generate interest from a wide range of possible acquirers. Without this activity it is simply not possible to generate enough competing acquirers to maximize the sale price. Our process works so effectively that on average we identify 230 strategically motivated potential acquirers and, by generating competition between these buyers for our client’s business, achieve a 225% spread on average between the lowest and highest offers equating to hundreds of thousands or even millions of dollars!
3. Understanding what your acquirers really want
Possible acquirers for a business fall into two distinct categories. The first are those looking to acquire purely for return on investment purposes. For these acquirers the aim of a purchase is to pay as little as possible in order to maximize near term future returns without real consideration of how to build long-term value. They almost never provide a maximized bid for a business because they are not bringing synergies, distribution channels, new clients or new products, but are only looking at the money they can receive back for the money they put in minus any overheads they expect to cut out. For these potential buyers, it’s all about traditional valuation methods.
The second category of acquirer is one which acquires for strategic purposes. These acquirers look to purchase businesses which are typically from the same or related market area but with differing products and services. This allows the acquirer to sell their products and services to the seller’s customer base and vice versa. The result of this is that the two businesses can instantly improve their own sales/profitability. Growth potential is improved because of the increased range of products and services that will be available for sale. For example, a sales force can have twice as many products to sell to clients. Because more products are sold to more clients, and use of corporate resources are optimized, the combined entity has more market credibility and can generate greater returns over time.
Although access to a seller’s customer base represents the most common reason for an acquirer to make a maximized bid for a seller’s business there are many other reasons for doing so including entry into the US market, access to intellectual property rights, growth potential, access to a skilled workforce, etc. It is interesting to note that growth potential and quality of clients are the most common reason given for paying a premium. ROI is rarely at the top of the list. Motives of purchaser are far more important than historical valuation methods when seeking to get the maximum value.
4. Selling the future, not the past
Strategic acquirers buy the future of a business. At BCMS Corporate we have developed a “Step Change Business Plan” which influences negotiations by projecting and then getting our potential buyer to agree on what the business will look like in three years’ time when the acquirer has applied its resources, finances, sales skills and customers. Our “Step Change Business Plan” has a significant effect on the sale process and provides a professional and high quality impression of the future potential of our clients’ businesses. At BCMS Corporate we employ skilled business analysts and accountants, and it is in developing our clients’ future business plans and other financial models that we best utilize their skills.
