The 3 types of Business Buyers for Small to Medium Sized Businesses
Do you know the 3 types of business buyers for small to medium sized businesses? We describe them here and share our strategies for finding them.
- Economic buyer or “Qualified Individual”: These buyers are most interested in buying income. They are essentially looking to “buy a job”.
How to Find them: These are usually reached via the internet or through Entrust Associates’ proprietary database.
- Strategic Buyer: This tends to be a company or a business that is looking to expand their enterprise through an acquisition. In our opinion, this is the most desirable buyer for a seller, because they are not “just” buying income, they are also buying the synergies that the acquiring company brings to the buyer’s own enterprise (economies of scale, new facility, new technology, new market, ). Therefore, the target business is more valuable to the strategic buyer and they could conceivably pay more.
How to Find them: Through consultation with our client and asking, “Who would your business be a good complement for?”. Another positive with strategic business buyers is that we can select our target buyers and market directly to them. Also, these buyers tend to be more familiar with the transaction process and likely have better and faster access to financing.
- Financial Buyers: These are generally private equity companies usually looking for companies with at least $ 1 million in EBITDA (essentially cash flow), for a “platform” acquisition. These buyers can also be looking for a “add-on” business to an existing “platform” in their portfolio. For “add-ons” they will usually consider a smaller business ($500k in Ebitda or seller’s discretionary earnings (SDE)) or a business that has a unique technology or market niche. Also, usually financial buyers are expecting management to stay in place after the transaction for some period or indefinitely.
How to Find them: Most intermediaries are in regular contact with many Private Equity Groups (PEGs) and vice versa. This often occurs through industry conferences and industry databases etc.