If the preference of the seller is to cash out, private equity firms usually have plenty of ready cash or access to financing to acquire a company and often at healthy prices.
On the other side of the ledger, strategic buyers have traditionally paid higher prices for private companies.So why not just sell outright to a strategic buyer in the first instance? Private equity financing can be quite flexible for a market growth-by-acquisition strategy for leveraged buyouts and succession planning or ensuring continuing employment for key employees. The decision depends on the owner’s needs and objectives and ultimately the valuation(s) at the time of sale.The final caveat of choosing a financial buyer is to consider the risks and benefits of cashing out part of your business up front and selling your remaining shares later versus selling the whole business all at once. However, while the private equity buyer may require you to continue operating the business, you will lose control of your own destiny even if you’re smart enough to include a buy back option if a divorce is required.
multiple buyers, single best buyer”If you don’t aggressively investigate potential buyers while they’re investigating you, you can’t possibly wind up with the best deal,” warns Shuman, whose $12-million company was wooed by three would-be acquirers during an industry consolidation in 1992,” (Fraser, 1994)Creating competition among multiple buyers should be the ultimate goal, not to just find a single buyer. A buyer without competition feels free to offer less than the full value of a business. Marketing strategy to attract prospective buyers should include developing a set of criteria that constitute a profile of the “ideal” buyer.Articulating objectives, both financial (sale price, liquidity, taxation, estate planning) and non-financial (management succession, reputation, employee and stakeholder concerns, and other special concerns) is essential.
Buyers will pay more for companies that have a demonstrated track record, a continuing positive trend, and a story about a well run company.