Some of you reading this title might be scratching your heads, thinking, “Of course I know what a buyer is buying when he/she acquires my company. They are getting my (fill in the blank)!”
Ultimately you may be right and have stumbled upon the answer to the most important question facing any business owner looking for a buyer for his/her business: What features will ultimately attract the optimal buyer to my business? However, in our experience, it takes a savvy, experienced M&A professional to understand the motivation of a buyer.
This piece, though, is a fourth in our series on miscues to avoid, assuming you are trying to find a buyer without professional M&A advice.
Management and sales guru Peter Drucker is widely credited with summing up this mistake quite nicely several years ago:
"The buyer rarely buys what the seller thinks he is selling." Peter Drucker
Although this applies to sales/marketing in general, it is applicable to the sale of a privately held business since there are usually so many intangible assets involved in the transaction.
What is an intangible asset (a.k.a. off-balance-sheet asset)?
These are items that make your business unique but usually are not on your balance sheet because they cannot be financially accounted for as a typical asset like a truck or piece of equipment that you use on your shop floor. However, quite often, it is these intangibles that provide your business with tremendous value in the eyes of specific buyers.
Here is a list of intangibles for manufacturing entities that I created several years ago (every industry has its own):
Some CPA types will argue that each of these is already factored into the value of the company because many of them are needed just for the company to generate the revenue and profitability that it now does. They tend to downplay the role of intangibles a bit, since they believe that they are technically already factored into the valuation equation via the projected earnings of the company going forward. On one hand, they are fundamentally correct. Many of these intangibles are literally why you are still in business.
However, what we have seen time and time again is that specific buyers will see the off-balance-sheet assets of a company and make the calculation that under their management one or more of these could be even more valuable than what is being shown in the company’s current pro forma.
For example, a company located on the East Coast but with no presence on the West Coast could look at a business in that region and realize tremendous upside. Likewise, a manufacturer with no rail spur close by could see that you have one next door, thereby reducing shipping costs dramatically, as a significant intangible asset. Finally a company with a great product, but a weak marketing and sales staff could look at your stellar sales performance and marketing team as a valuable asset to add.
These are just a few examples. The history of M&A is littered with buyers who were able to make a killing off an acquisition simply because the seller(s) had no idea just how valuable their company was based on a few of these intangibles being present. Don’t make that same mistake. If you are looking for buyers without professional help, do your research and analysis. Find out which buyers are active in your industry. What are they specifically acquiring and why? Then honestly analyze your company and see if it has any of these features that are sought after. If so, you may be sitting on an intangible goldmine.
Of course, we suggest that you avoid the second mistake we covered in this series: Trying to find a buyer without professional M&A guidance.
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
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I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”Karen S. Williams, CFO, BW Manufacturing
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.Karen S. Williams, CFO, BW Manufacturing
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.Pete L.
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
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