At the end of the day, however much your company is evaluated at, it is only the amount you are able to sell your company for that counts. Your company may have different worth to different buyers. So, one of the most important parts of selling a company is finding the buyer who will benefit the most. In this article we will look at what the different types of buyers are and how to tell what is the right buyer for your business
Types of buyers
Buyers can have different reasons for buying a business.
Vertical integration occurs where a business will buy the company up or down from them in the supply chain. Often a client buys its supplier to have more control over its supplies and better negotiating power over other suppliers. A supplier could also buy a company in order to have access to its client. Although this is not so common as there are usually many suppliers for one client.
Some buyers wants to get into a different geographic area or to broaden their customer base and get a larger part of the market share. A foreign company may want to buy a strategic business that enables them to expand into an area with a different culture. From this foothold they will then be able to grow their business further, with appropriate cultural adaptions.
Businesses may also look to acquire other businesses with complimentary products to their own.
Venture capital is used to invest in high risk sectors that are expected to grow quickly. This accounts for the acquisition of over 30% of businesses.
What makes your Company Attractive to a Buyer?
To understand how attractive your company may be to a buyer it is good to do some analyses on your business, its position in its sector and the trends that are in play. There are various analytical tools available.
SWOT is an analytic which analysis the strengths, weaknesses of a company and then the opportunities and threats which are prevalent in the sector it is working. Different strengths in two companies which are combined can lead to great synergy. Looking at the opportunities and threats, it is possible to see how combining businesses can help to make use of those opportunities or guard against the threats.
PORTER’S 5 FORCES looks at the company’s rivals and their strength, possible entrants into the market, suppliers, customers and the potential for substitute products
Businesses can be attractive for the following reasons:
- If a company does not have large competitors
- If a company is in a sector where it is difficult for new companies to enter, buying the company is a way into that sector
- When a sector has a large number of suppliers. This means that costs are kept down from the competition.
- A large client base. The more clients there are the more chance of pushing prices up and increasing cost effectiveness
- A low threat from substitute products, which could take away trade.
THE BOSTON BOXES places companies in one of four quadrants according to their market share and their market growth. This shows how much value their product has both now and in the future. The four quadrants are:
Stars, which have a high market share and high market growth. These will look for other companies, so that they can keep growing.
Cash cows which have a high market share, but a low market growth will look to acquiring other companies to keep in their position
Question marks, which have a low market share, but a high market growth, are fairly unstable and will look for companies that will give them that stability
Dogs, which have a low market share and a low market growth will usually look to be sold
One of the main strategies that is used from the Boston Boxes is that of Cash cows investing in Question Marks so that they can increase their relative share. This model does come out of time when market conditions were more stable, so care needs to be taken in taking this model at face value.