Who’s the Right Buyer for Your Business? Understanding Your Ideal Exit Partner

Selecting the right buyer is crucial for a successful business exit. To determine the best fit, there are several key areas to consider:

• Involvement in Day-to-Day Operations: Are you interested in continuing to play an active role in the business?

• Financial Requirements for Retirement: Do you have a specific amount you need to receive in order to retire comfortably?

• Team and Employee Considerations: If you have a large team of W2 employees and developed corporate functions, do you care if everyone remains employed after the acquisition?

• Post-Sale Involvement: Would you want to continue operating the business after the sale?

• Succession Planning: Is there a potential successor within the business already, or would you need to hire someone post-sale?

• Brand Legacy: Do you care if your brand legacy continues after the sale?

Once you’ve reflected on these questions, you'll be in a better position to identify the right buyer for your specific situation. The following exit options may be ideal depending on your priorities:

Note: To make the comparisson’s simple, I will assume that you as the business owner are current serving the role of CEO/President.

1. Strategic Buyers

These buyers seek businesses that complement their existing operations. They often can pay the most verses other buyers because they already have an existing corporate function in their business and typically can eliminate costs by removing redundancies within the new org structures. Additionally, adding your customer based and key team members to their existing organization may unlock an accelerated growth path for the acquirer.

This is a great option for business owner’s that have a lean team but developed other unique strategic advantages and do not particularly care whether or not the brand of their existing firm continues on.

Depending on the capabilities of the strategic buyer, the current CEO may or may not need to remain active in the new firm.

When you are ready to sell, hiring an M&A Advisor would be the best way to market your business to a variety of buyers that meet this profile.

2. Financial Buyers

Private equity firms and investors seek profitable businesses with growth potential. They typically focus on financial returns and may not integrate the business into another company. These firms almost exclusively value businesses off historical cash flow, risk profile, and growth expectations.

Depending on the firm, there is a good chance that a financial buyer might require the existing CEO to stay on to run the business. If you have hired/promoted up a CEO, then you likely would be able to still have a full exit with this type of buyer.

Another important item to note is that the standard Private equity model is to hold an asset for 4 - 7 years and then sell it once the valuation creation plan has been executed.

If it is important for you to have a permanent succession plan, then this may not be the best option.

When you are ready to sell, hiring an M&A Advisor would be the best way to market your business to a variety of buyers that meet this profile.

3. Management or Employee Buyouts

Selling to your management team or employees can ensure business continuity. This can be a great option if you have a leader in Sales, Operations, or Finance that has already demonstrated the capabilities to be an effective CEO.

While financing may be an issue, options like the SBA 7A loan program may be able to make this path a reality.

4. Immediate Competitors

Competitors may be interested in acquiring your business for market expansion. While this can be lucrative, confidentiality is a concern. This path would be similar to the idea of selling to a “Strategic Buyer” except that there is a good chance that you already have deep connections with the competitive players in this space.

If you have a competitor that you trust that might make sense as a potential acquirer (and you are aware/accepting of the impactions of a strategic buyers as highlighted above), then this can offer you a very accelerated path to an exit.

It is important to note that you are always going to be best suited by using an attorney experienced with business M&A deals no matter which approach you use, even if the sale is to someone you know and trust. This will reduce conflict and information asymmetry as you conduct negotiations and draft/review terms.

5. Family Succession

Passing the business to family members ensures legacy preservation but may require years of preparation and training. In the event that you still required some form a liquidation, your family member can also leverage the SBA 7A loan program to provide your with a true exit event as you transition.

Identifying the right buyer early will help you tailor your exit strategy and negotiation approach.

6. Individual Buyers

Selling to an individual buyer typically makes the most sense when none of the other exit options are suitable for your specific needs and business capabilities. The benefit of selling to individual buyers is that you can often find the most flexibility in the transition process and deal structure. In these cases you are selling your business to an entrepreneur who professionally acquires and operates businesses. Depending on the entrepreneur, they would likely be open to providing you with a full exit in which you can fully move on from the business (after spending an appropriate amount of time supporting the transition process) or allowing you to roll equity and continue working within the business in some capacity. These individuals are most likely to retain your entire team and maintain your brand name in the go-forward plan as your company would be a stand-alone asset for this type of buyer in most situations. Like financial buyers, these individuals are mostly likely to value your business based on your cash flow, seller’s discretionary earnings, or annual recurring revenue.

Final Thoughts

Consider your true non-negotiable desires in your ultimate exit structure. Based on that, determine the right buyer profile for your business and assess whether the characteristics, structure, and historical performance of your business is currently optimized to be most attractive to that buyer profile in order to ensure you are giving yourself the best opportunity to maximize your exit proceeds.