When selling a business, there are effectively two types of buyers: financial and strategic. Financial buyers assign a value to the future profit generating power of your company. The second and much more valuable buyer is strategic, where value is based on exploiting all the underlying assets and capabilities of your company.
Become a buyer magnet by identifying and developing strategic assets and strategic capabilities a larger company can exploit. It may not matter whether your business is making a profit, or has high revenue, or even growing.
Who is a strategic buyer?
The best strategic buyer will be another company much larger than yours — five to 50 times. In this case, size really does matter.
It is any company that produces or sells goods or services that complement your goods or services.
How to find strategic acquirers
Critical thought around these 10 questions will help you identify businesses, or entire industries complementary to yours who could be a potential acquirer.
1. Who makes money when you make money?
Someone who distributes the products you sell, a supplier, a customer, or even an independent distributor.
2. Who does not make money when you make money?
Buying a competitor may provide multiple benefits such as increasing the customer base for existing products, reducing pricing pressure, improving sales processes by adding new products or services, upgrading or integrating products/services. A buyer may cross-sell new products to existing customers, acquire your technology or research and development capability, or your entire customer base.
3. Who can make more money than you can from your products?
A company with a much larger capacity to scale that can easily introduce your products or services into existing customers or distribution channels.
4. Who can remove a constraint on your business?
If you want to grow your business, five or 10 times your current size, identify one or two roadblocks constraining your ability to do that. It could be location, distribution channels, export capabilities or finances?
The strategic buyer is the one that can overcome that roadblock.
5. Who has a problem you can solve?
Your buyer may lack capability or capacity in some new area, technology, or process. Sometimes the quickest way to solve the problem is to simply acquire it.
6. What threat can you reduce or eliminate?
A threat occurs when a company or industry has a potential, or an actual decline in revenue. By acquiring already available products or services the threat may be eliminated or reduced.
7. Who sells to the same customers you sell to?
They may be able to cross-sell or utilise their own distribution channel to move new products or services.
8. Who uses the same technology you use?
If the use of some specific technology, especially if that’s an expensive or difficult technology, acquiring another company may increase capacity or allow entry to new markets.
9. Who needs your customer base?
Your customer base can be a truly valuable asset, especially if it provides opportunities for the buyer to sell additional products or to break into a new sector.
The customer base is not just about a list of people, it’s about the relationship you’ve built with those people.
10. Who needs your technology or your people?
If you have specialised technology, especially if it’s protected with patents or highly skilled staff with deep focused knowledge, this provides a buyer with a huge scalable opportunity.
You will become a powerful buyer magnet by creating strategic value in an asset or competency within your company that a larger corporation can leverage to solve a major problem or use to generate significant revenue.