Finding a Buyer for a Business

A key part of preparing a business for sale is thinking about who might buy it. To do this properly, a comprehensive prospective purchasers list comprising all strategic and financial buyers and potentially wealthy individuals who might be interested in acquiring the business, needs to be compiled.

• Strategic buyers might consist of:

  • domestic and international competitors;

  • customers and suppliers; and

  • businesses operating in different industries, but with similar core competencies.

• Financial buyers include private equity firms who may see the business as having significant growth opportunities which they can help to realise using their investment funds.

• Individual buyers are entrepreneurs looking to buy a business

These are discussed below:

Competitors

Competitors would usually have the most to gain strategically from buying a business. For domestic competitors, this might include opportunities for them to:

• consolidate their position in existing product and geographic markets;

• diversify into new markets;

• cross sell their products to the business' customers;

• improve their profit margins by realising cost synergies;

• gain access to new technologies, intellectual property and employee skill sets; and

• to remove a competitor from the market.

For international competitors, an acquisition of the business might be an opportunity for them to enter the Australian market.

Customers and suppliers

Customers and suppliers may also have strong strategic reasons for wanting to buy a business.

• In the case of customers, it might be an opportunity for them to secure the supply of key components used to manufacture their products.

• For suppliers, it might be the opportunity to secure a distribution channel for their products.

• For both customers and suppliers, it might be an opportunity to optimise their margin through vertical integration.

Businesses with similar core competencies

Businesses operating in different industries but with similar core competencies to the business being sold may also have strategic reasons for wanting to acquire it.

Examples of businesses serving different industries that require similar operational expertise include hotels, cinemas, family entertainment centres, theme parks and ski fields. Each of these involve managing the following to be successful:

• customer occupancy;

• average transaction value;

• a large full time, part time and casual workforce;

• ongoing product innovation to remain relevant;

• creative marketing and promotion campaigns to attract and retain customers;

• substantial capital expenditure requirements; and

• compliance with food safety, work, health and safety, employment and privacy laws.

Leading leisure and entertainment conglomerates like Disney, Merlin Entertainment, Village Roadshow and Event Hospitality and Entertainment are all examples of groups that have made acquisitions of businesses operating in different but complementary industries, like the aforementioned, to achieve strategic growth.

Private equity firms

Private equity firms might be interested in purchasing a business if:

• it has a strong position in its market;

• is led by a capable management team: and

• has a clear strategy to generate strong earnings growth through investment.

Examples of Australian private equity firms that specialise in acquiring smaller businesses with less than $5 million of earnings include Axle, Belay, White Oak, and Seneca.

Examples of Australian private equity firms that specialise in acquiring medium size businesses with more than $5 million of earnings include Riverside, Advent, Crescent and Quadrant.

Pacific Equity Partners, BGH Capital, Blackstone, KKR and TPG are examples of private equity firms that transact large billion dollar plus deals.

Individuals

If a business is small, then there are either seasoned entrepreneurs, or people looking to exit the workforce who may be interested in acquiring it.

Potential buyers can therefore be sourced from a variety of different sources. Extensive research is therefore required to identify all domestic and international prospects from the above categories as part of preparing a business for sale.

It is critical to compile a comprehensive buyers list in order to optimise competitive tension in a sales process; and to rank the list from most to least likely buyer to determine the strategy of approaching them.

If you are planning on selling your business, then Total Advisory Partners can help you find the right buyer for your business by compiling a prospective purchasers list. As part of this, we will advise you how best to approach any competitors, customers or suppliers, mindful of protecting your business from any potential risks created by including them in the process.