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Why Business Sellers Should Think Like Business Buyers

By Generational Equity

Think Like Buyer

One of the most important aspects of the services Generational Equity provides its clients is the perspective of a business buyer and how they view privately held companies. You see, far too often business owners are so involved in the minute details of their daily operations that they are unable to fully grasp how a buyer may view their company. We help them, through our experienced evaluation team and dealmakers, to begin to see their business as buyers will.

This is important for two contrasting reasons:

  • It helps business owners understand the “risk” that some buyers may see in their businesses.
  • On the flip side, we can also help business owners see the positive “intangible assets” that many buyers may be willing to pay a premium for.

Understanding the Risk in Your Business

Both of these “buyer” perspectives are equally important. First, when selling your business, you may have no idea why the fact that you make all the key decisions for your company could be seen as risky. Known as owner dependence, this is a vital area that buyers look at when making an acquisition. “Will the operations continue once the current owner departs?” is the question behind this one.

Nor will you understand why having 80% of your revenue coming from one client might be a challenge for many buyers to overcome. We call this customer concentration and it is probably one of the most prevalent issues we tackle with our clients.

From a seller’s perspective, it shows just how great your company is at filling orders and exceeding client expectations that you are able to have a long-term relationship from one blue-chip business. But professional buyers see this issue differently: They wonder, if 80% of the revenue were to disappear the day after our acquisition, where will we recover it from?

These are just two of dozens of risk factors that we help our clients understand the importance of from a buyer’s perspective. Are they generally happy when we point these items out? Usually not. But we have a fiduciary responsibility to do so as their M&A advisors. We also suggest how to improve these areas within our Roadmap for Enhancing Value document that is provided to each client.

What about the Intangible Assets?

In addition, we also help business owners realize that oftentimes their companies hold intangible assets (a.k.a. off-balance sheet assets) that can also be seen as valuable to specific professional buyers.

Because most business owners only sell one company in their entire career, they have no way of knowing how a buyer might view items that they often take for granted as part of their daily operations. These can include many items, such as:

  • Recurring revenue streams (from more than one customer of course)
  • Experienced employee base with low turnover
  • Solid and documented systems and procedures (not locked in the owner’s head)
  • Stable and large vendor base
  • Significant market size and growth potential
  • Dedicated and skilled sales/marketing team
  • Well-trained and mentored middle-management
  • Business plan in place and updated annually
  • Proprietary software developed in-house
  • Defensible market share
  • Location, location, location (and not just for retailers)

This is just a short list of some of the intangible assets we look for when evaluating/selling a company. Do all buyers value these equally? Of course not. For some, many of these might be irrelevant. However, one or two of these could be considered as a goldmine to the buyer and worth paying a premium for.

For example, let’s say a manufacturer of a complementary product to what you produce has a tremendous plant with lots of capacity, but lacks a sales team. Your dedicated and skilled sales/marketing team might be quite attractive to that individual.

Furthermore, let’s say your plant is located on a local rail spur, allowing you to load and ship your product more efficiently (and cheaply). Many buyers might find that worth paying a premium for!

And these are just two examples of intangible assets that many business owners take for granted. But we don’t. Our deal teams are extremely skilled at knowing what specific buyers want and putting the right opportunities in front of them. This is probably why we have been awarded Investment Banking Firm of the Year two years in a row and have led the Thomson Reuters league tables year in and year out for nearly a decade:

If you want to learn more about how buyers think when they are examining acquisition opportunities, a great place to start is at a Generational Equity exit planning conference.

We hold these throughout North America, and they are designed to help business owners reach a better understanding of all aspects of exiting, but also how professional buyers operate, what they are looking for, and above all else, how they often value intangible assets.

To learn more from our professional M&A advisors, use the following links or call us at 972-232-1121:

As you move forward with your exit plans, the more you can learn how to think like a buyer, the better your chances of securing an optimal value!

By Carl Doerksen, Director of Corporate Development at Generational Equity.

© 2021 Generational Equity, LLC All Rights Reserved

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Terry D. Wickman, President, Keytroller
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Betty L. Brennan, President, Taylor Studios
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Larry Moore, Owner, A Company Portable Restrooms
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Robert Evans, President and CEO of Mealtracker Dietary Software
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Larry Moore, Owner, A Company Portable Restrooms
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Jay Dinnison, Owner of Sharpe Mixers
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Bil MacLeslie, CEO, ipHouse
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Terry D. Wickman, President, Keytroller
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Caroline Connelly, CEO, OptoTest
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Bil MacLeslie, CEO, ipHouse
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Andy Graham, Vice President, Modern Heating & Plumbing
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JoAnn Ellis, Owner of Fondren 5 Star Kennels
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Tom Currier, Former President & CEO, Rackmount Solutions
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