Selling to a financial buyer is often a good alternative for a company. In most cases, the financial buyer can move more quickly when compared to other types of buyers. The financial buyer typically has more valuation, deal structuring and due diligence experience than other types of buyers. They have well established advisory relationships that help expedite the sale process. However, given their financial sophistication, a seller rarely gets a purchase price premium. The financial buyer will buy a company at or around fair market value.
A financial buyer is interested in purchasing a well run business. They target companies that have solid financial performance and a strong management team. They want to see solid back office operations and good information systems.They have no plans to run the business. They look at the company as a good stand alone investment. A financial buyer typically brings very few synergies to the table and often finance much of the purchase price using debt. Most financial buyers want to achieve a successful exit within five to seven years.
The key to selling to a financial buyer is advance planning. In your formal strategy process , you should at a minimum assess the following:
- Do we have a solid management team in place?
- What is our key employee retention strategy?
- What do we need to do to solidify our back office operations and information systems?
- How will we maximize earnings over the next year?
- What can we build over the next five to seven years?
- Are my investments aligned with these initiatives?
- How will we communicate our intention to sell to a financial buyer with our various stakeholders?
Your strategy process must focus your team on building a business that will be more attractive to the financial buyer.