Exit Strategy: How to Find The Right Strategic Buyer

When looking to sell a business, it is usually in the seller’s best interest to sell to a strategic buyer.  Strategic buyers usually include competitors, suppliers or customers of your company. They are looking to integrate your business with their operations to derive synergies and increase shareholder value.  As a result, they may be willing to pay more than financial buyers who are looking at the business as a stand-alone opportunity. The challenges in selling to strategic buyers are two: How do you find the right strategic buyer? And, how do you extract the maximum value for the sale of the business?

 

IDENTIFYING STRATEGIC BUYERS

To identify strategic buyers, you need to look at the business from their point of view.  They look for a fit with the business, or some aspects of it.  The acquirer may be a competitor, a supplier, or a customer of the business. In each case, it wants a specialized resource controlled by the target firm that becomes more valuable when combined with its own resources – the synergy. Various forms of synergy exist.

M&A Rationale vs. Synergy

Ultimately, strategic buyers see the target business as a way to enhance their existing business in a way that is cheaper and faster than organic development.

 

THE RIGHT STRATEGIC BUYER

The right strategic buyer is often the one who will value your business the most, and will perform various types of valuation to determine whether your business is a sound investment.   As dictated by the complexity of the deal, these valuations may include the following:

Types of Valuation For The Business

Knowing how buyers value your business puts you at a great advantage. However, it is important to realize that a strategic buyer will not pay more than a financial buyer if there is only one strategic buyer – and they are aware of it.  They will not pay more than a financial buyer absent any competition from other strategic buyers.

 

BEST PRACTICE

It is imperative to find as many buyers as possible, financial and strategic, to sell a business for the optimal price.  Ultimately, competition among buyers will increase the offers for the business and help to surface their strategic intent.  Effective strategic exit strategy and preparation will be fundamental to finding strategic buyers and making your M&A strategy work.

To learn more about M&A strategy and how to plan effectively, view our reading: “M&A Strategy Formulation:  Unlock Multiples of Value.”