Selling Your Company? Is there is a Synergistic Buyer Who Will Pay a Premium?

By; Gary Rayberg CBI, M&AMI

May 8, 2018

Entrepreneurs all dream of Warren Buffet showing up at their door to buy them out. While this only happens to a very lucky few, there may still be a synergistic or strategic buyer for your business.

How do you find out if there is a synergistic or strategic buyer out there?

A good business intermediary or business broker will follow these steps to help you determine if you should sell your business via an auction.

First, get a third-party business valuation. This should provide you with a “Fair Market Value” or the value the business would have to a “financial buyer” in the marketplace.  This will be the base value, close to the amount  you should get  from a non-synergistic or non-strategic buyer. This is your sanity check. A valuation will set you straight and will pull you away from all those” rules of thumb” you keep hearing about. If a business valuation is performed by a qualified professional it should be very accurate whether you like the number or not. ROI can help in this process by recommending companies to do the valuation that are reasonable in cost and nationally recognized.

Next, with your Intermediary develop a list of possible buyers who may see more value in your company. They could be competitors, customers, suppliers, Private Equity Groups or others who want access to your customers or need your location for their products or services. Once this list is developed, a good business intermediary will understand what the attributes are of a possible synergistic or strategic buyer. He or she should be able to add more names to that list.

Informal Auction Process.  This is not an auction like a bank has on a foreclosed property. An Informal auction is a very positive chain of events to maximize the bids buyers make for your business.

The intermediary will make contact with all possible buyers on the list. Confidentiality is maintained until non-disclosure agreements are in place with all interested buyers.

The secret is to provide all the same information and disclosures to each buyer. The intermediary will need to point out the synergies and why the buyers will benefit greatly from buying your company.

Once the first offer is received the intermediary pushes the other buyers to come forward in a timely fashion with their offers. In many cases a firm date is set for Letters of Intent.

In a good auction there may be 5-15 buyers in this first phase.  The offers are reviewed and a final and smaller (usually 2-5) group of buyers is assembled. At this stage a lot more than offer price alone may be considered by you.  Will key employees be protected? Which company has the best terms from a tax perspective? Which buyer do you feel most comfortable with? Is there an employment agreement for you? Etc.. Every seller has somewhat different concerns beyond offer price but at this stage these items are given close scrutiny.

Once the members of the final group are re-contacted and final offers are in place, a first and second place winner are selected. Remember, the first deal may fall through so the backup buyer is important.

While there is more that goes on in an auction, these are the general steps. The time frame is generally 3 to 9 months depending on the number of buyers and how quickly they begin to come forward.

Not all companies are right for this process but consulting with a qualified business intermediary will help you decide the best course of action to maximize the sales price of your company.

A Partial Sale Option. Remember that in some cases the entire company is not sold. Instead a seller may elect to sell 70% (or some other percentage) and retain a position of leadership with a second, and sometimes larger, liquidity event down the road.  Five years is the typical hold period but is can vary widely depending on the desires of buyer and seller. This can give you security today, continued employment with income and a second bite of the apple!  If you are thinking of selling  all or part of your business , or would like additional information, please contact Gary Rayberg.

Gary Rayberg is President of ROI Corporation. ROI is one of the largest and most successful business brokerage and valuation service providers in the Northeast and has expanded into the Southeast as well.  Gary is a Certified Business Intermediary, a Mergers and Acquisitions Master Intermediary (M&AMI) and a member of the M&A Source,  International Business Brokers Association, The Institute of Business Appraisers and is the immediate past President of The New England Business Brokers Association. He is also Chairman of the Board of the Business Brokers Alliance of New England. He can be reached at 781 -682 -6209 or by e-mail at grayberg@roibusinessbrokers.com.

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