When we get together with a business owner and start the process of selling their company, some of the same general questions come up. How much will a buyer pay for my business? How long will it take to sell? Who is the best buyer?
The first two questions are a bit subjective, but the best buyer question is almost always someone who is not currently operating a business in your industry. To many business owners, they are a bit surprised to hear a competitor or someone looking to gain market share is typically not the best buyer, at least in terms of getting maximum value for the company. I’ll give an example of an Augusta area HVAC company we sold further down in the article.
Business value is comprised of multiple factors both tangible and intangible. Tangible value will include the furniture, fixtures and equipment, inventory, and real estate if applicable. Intangible value includes your financial performance, trained employees, processes and procedures established to operate the company, vendor and customer lists, your good reputation and other goodwill factors. A business buyer, who is already in your industry, unfortunately does not give a lot of consideration to a business’s intangible value. What the buyer says is they already know how to train employees, they have their own procedures in place to operate the business, they have their own established vendors and have established a great business reputation and because of that, they do not want to compensate a business seller for those attributes. The value essentially falls to just the value of the tangible assets with a small consideration for customer lists and financial performance.
A non-industry buyer on the other hand is someone that is evaluating the financial performance of the company and all the tangible and more importantly the intangible assets of the company. They do not have experience in the industry, so the trained employees, industry specific policies and procedures and the other intangible assets of the company have more value to the buyer. They really want the entire package you have for sale and just not some of the pieces.
As mentioned, we listed and sold a HVAC company not too long ago. Within the HVAC industry there seems to be a lot of consolidation with HVAC companies buying up their competitors. When going to market, the business owner supplied me several mailings and emails he received from other HVAC companies saying if he ever decided to sell his business, they would be interested and he asked me to pursue those potential buyers. I advised the seller about what I mentioned above about tangible value and intangible value and how an industry buyer thinks.
We were successful in getting multiple offers on the business with four offers from industry buyers and two offers from non-industry buyers. Both of the non-industry buyers offered more than double what the industry buyers were offering for the company. The seller settled on one of the non-industry buyer offers and the company was sold to that buyer.
So, many times who you think might be the best buyer for your business can turn out to be someone quite different.