It depends upon who is buying. The first step in placing a value on your business is identifying the “Right Buyer.” The range of values that different Buyers may be willing to pay is staggering. Buyers pay for opportunity. The Buyer who perceives the greatest opportunity is the Buyer willing to pay the most for your business.

Identifying the “Right Buyer” requires understanding the four main classifications of Buyers.

Strategic Acquirer

These are the very best Buyers. They almost always pay cash and buy at a premium. Typically public or very large private companies, their decision to buy usually revolves around considerations of economies of scale, new channels of distribution, new technologies or other integration considerations. To be attractive to a Strategic Acquirer, your company should fit most, if not all, of the following criteria: Sales in excess of $3 million, EBITDA greater than $500k, Unique market presence or share Synergistic fit with the acquirer, Suitable management willing to stay.

Sometimes a business that does not meet these criteria can be the target of a “strategic acquirer.” A good example might be a small business that an acquirer believes could be franchised or expanded into a chain of similar locations. At Sunbelt we look for every reason that may make your business attractive to a strategic Buyer.

Professional Buyers

This group of Buyers emerged as a force when the “merger mania” of the late 80’s ended and Buyers began to recognize the opportunities in the private sector. Lower interest rates have also spurred the growth of these Buyers by encouraging the formation of investment groups whose purchases are made using a “schooled” approach. There are two distinct types of Professional Buyers and the acquisition criteria they use are as follows:

  • Private Equity Groups look for Revenues from $10 million upwards to $500 million, Earnings of $1 million for platform acquisitions Earnings,  $250k minimum for add on acquisitions, Investment of considerable cash or equity and they Pay 3 to 6 times EBITDA
  • High Net Worth Individuals traditionally look for Revenues from $2 million upwards to $20 million, Looking for a business can expand exponentially, Expect 6 figure future earnings, Expect to leverage a part of the purchase, Expect the Seller to finance part of the buy and they Pay 2 to 5 times EBITDA.

Sophisticated Buyers sometimes buy companies smaller than the outlined criteria. A good example of a business attractive to the sophisticated Buyer is a light manufacturing business expandable into multiple markets through expanded marketing and solid management.

Main Street Buyer

By far the largest group of Buyers, Main Street Buyers are the most common Buyer for Main Street and Upper Main Street businesses. These Buyers tend to focus solely on present and past earnings and will not typically pay a price based on future earnings. The Financial Buyer is buying a job or a career, and will consider a fair price if the transaction meets the following criteria:

A living wage typically commensurate with the initial investment and a modest return on the cash investment. Main street Buyers are willing to pay 1.5 to 3 times SDE. (Not EBITDA), are often looking for SBA or Seller financing and a business that is a good fit with their skills.

Industry Buyers

Unless they are doing a consolidation or roll up in their industry, this Buyer is almost always the Buyer of last resort. If you have to sell, the Industry Buyer is usually the only Buyer you will attract. The difference between the Industry Buyer and all others Buyers is the value of goodwill: Most of the time Industry Buyers won’t pay for it. The Industry Buyer typically will pay Liquidation value, Book value, or Adjusted book value. All too often business owners who are attempting to sell their business on their own say, “Why not? I know everybody in the industry.” Unfortunately, many times, a sale to the industry Buyer means a deeply discounted sale.

The first step in selling your business is understanding what it is worth. Sunbelt Business Brokers can assist you with a free professional business valuation. Timing is everything, so call us today.

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