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The 5 Types of Business Buyers You Could Consider



When contemplating or preparing to sell your business in the UK, it's crucial to determine the specific type of buyer you aim to attract. Recognising that various types of buyers are driven by distinct business priorities when considering an acquisition is essential for business owners when devising a sales and exit strategy.


Not all buyers share the same objectives or desires. Understanding precisely what your business represents as an opportunity to potential buyers will enable you to better grasp and plan your exit strategy. Here, we delve into the five most prevalent types of business buyers and their typical motivations:


Trade Buyer

A trade buyer is typically an established business seeking growth through acquisition. Many trade buyers can be regarded as strategic buyers, as they are looking for a business that can enhance their market position, expedite growth, and possibly create new revenue streams while complementing their existing operations. Motivations for trade buyers may include eliminating competition, adding a superior product or service, expanding into a new business territory or market segment, or simply achieving critical mass in their industry. Among all buyer types, strategic buyers typically possess the financial capacity and motivation to present the most attractive deal to the seller. This is often because they believe that acquiring your business will provide them with substantial synergies and a competitive edge, making them more willing to pay a premium.


Private Equity

Private Equity firms are financial institutions that have secured capital from investors and banks. They are particularly interested in businesses with rapid growth potential and scalability. The larger the opportunity, the more appealing it is to private equity buyers. A private equity buyer will seek a strong team with proven leadership and experienced management. The business should have robust systems, a track record of financial growth, and the existing team is likely expected to remain involved for some time. Essentially, private equity firms provide the financial resources and are prepared to make significant investments to help you and your team elevate the business to the next level. Private equity buyers typically plan to exit their investment through a trade sale or an initial public offering (IPO) several years down the line.


Management (MBO)

A Management Buy-Out (MBO) occurs when the existing management team purchases the business from the founder. For owners, this option can offer advantages such as deal confidentiality, a swift and smooth transaction due to the management team's familiarity with the business, its culture, customers, systems, and processes. However, the management team is likely to need to raise the funds to purchase the business, which may involve relying on borrowed funds from third parties and providing Personal Guarantees or other forms of legal security to lenders. Funding shortages may occur, leading to a deferred or delayed sale consideration to facilitate the completion of the sale. Sometimes, the MBO team can secure financial support from Private Equity, creating a win-win-win situation for all parties involved.


Employee Ownership Trust (EOT)

An Employee Ownership Trust (EOT) is a unique opportunity that allows your employees to take ownership of the business. It's a powerful option if you want to ensure the legacy and future success of your company while benefiting your dedicated team. By selling to an EOT, you can create a sense of ownership and commitment among your employees, which can lead to long-term growth and stability. Plus, the sale to an EOT is often tax-free, providing significant financial benefits. With a high level of exit certainty, the EOT option is a logical back up if you fail to find the right trade buyer.


Private Investor

A private investor shares motivations similar to a private equity buyer but on a smaller scale with fewer resources, both financially and in terms of management experience and breadth. This buyer can be categorized as a financial buyer, seeking to acquire smaller, affordable businesses across various sectors with growth potential. Private investors are likely to want you to continue running the business after their investment and plan a full business exit to a trade buyer in the future. Caution is advised if the investor lacks relevant sector experience and offers to acquire your business primarily based on a share equity arrangement or performance-based earn-out. Exploring other options and avoiding rushed decisions is prudent, as better deals may be available with careful consideration.


Family

Selling your business to a family member, whether or not they have prior experience in the business, is an option. If the family member has previously worked in the business, the transition is likely to be smoother for the business owner, as the family member will be familiar with the company's culture, customers, and processes. Additionally, there is a lower risk for the owner, as the shares may stay within the family. However, challenges may arise if the family member lacks the necessary funding or experience to make the deal successful. In such cases, you may opt for a deferred payment arrangement, but this carries the risk of financial loss if the business does not perform well.


Regardless of the type of buyer you have in mind, it is essential to seek professional guidance from a trusted business broker with experience dealing with various types of buyers. At Business Exits we assist you at every stage of the sale process, ensuring a successful completion.


Now, here's the crucial part: If you're considering selling your business, the best time to start is early. Connect with one of our experienced advisors today to discuss your options and craft a winning exit strategy.



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