Selling Your Business to a Billion Dollar Acquirer

13 Sep Selling Your Business to a Billion Dollar Acquirer

Recently I had the privilege of negotiating the sale of a few mid-market transactions, valued between $5 – $50 million, to multi-billion dollar acquirers. On certain transactions, LockeBridge found the Buyer, but on other ones I was called in after multiple conversations between the concerning parties. One of the thing I found most common on all these transactions, no matter how big the buyer was nor how much of an impact the purchase price would have on their balance sheet, they all did their best to negotiate the best deal they could. Performance bonuses were at stake if you know what I mean!

I’ve experienced the “wine and dine” method in addition to its opposite twin which was a bleak conference room with no food or drink except six suit and ties from different professions on the opposite table as you. In my former life, I was at one point one of those suits sitting on the buy-side for a larger entity. There really was no personal accomplishment, no honor or drive to fight for something, but on the other side of the table is a different story. We do our best to get more than our fair share from the billion dollar buyer for the benefits of our clients so when it comes down to it you can count on the passion. This is one of the best “feel good” I’ve ever experienced and I do it for a living, but I digress. Let’s talk about how to take advantage of the deep pockets of your Buyers.

It’s important to note the best client is the one who started the business 20 or 30 years ago and has borrowed money from families, has worked many hours with little to no family time, and has health problems without fully knowing if he can continue. Finally, after 30 years he’s supported his family through his line of work and has been married to the business. The selling of his company will be a huge life changer, trust me as a business owner myself I’m familiar with this feeling all too well after multiple successful exits.

BIG BUYERS WILL PAY HUGE DOLLARS

One thing to note as a general rule of thumb is the bigger and farther away the acquirer is, then the higher the offer. With that being said, selling your company to a billion-dollar business isn’t easy. Most billion dollar acquirers won’t consider buying a small business with revenue or operating revenue less than $10 million and $100 million unless there are notable tangible assets with their operational model. The reason for this is because larger companies have huge integration costs and the purchase of a smaller business doesn’t really excite their playbooks. The point being is if you do have tangible assets and synergies between a buyer and a seller than the Buyer will value the purchase a lot more, however getting a premium value from your Buyer is another topic.

GETTING THE HIGHEST VALUATION

If you have a bigger company considering a purchase of a smaller business and/or a cross-border transaction then you can count on the fact that there are incredible synergies with their core operations and so this purchase would be beneficial to their overall playbook.

Some examples of this may be:

1.) The Buyer wants to build a customer base in a foreign market but wants to understand all the dynamics of doing business there before jumping into it
2.) The Seller may be conducting themselves with customers where the Buyer is having a tough time getting through to and the Buyer may increase the bottom line from selling their products
3.) The Seller owns proprietary technology that enhances the value of the Buyers core product(s).
4.) The Seller is selling product that requires expertise that would take awhile for the Buyer to acquire

Almost all mergers and acquisitions usually have a process of analysis that examines the costs and benefits of organic growth versus buying a business, product, or technology.

GETTING THE BEST OFFER

You shouldn’t assume that just because the value of your synergies are high that you will get a high offer. This is where you need to bring out your best negotiation tactics because these skills are found amongst the best when it comes to negotiators who have lots of experience in M&A. More often than not one or both parties will introduce new poeple to the deal. They may or may not have been involved with the process before delivery on intent. This individual is the Closer. Be cautious of the closer! They are unique from those on the advisory board before him. Most larger acquirers that have made many deals have a huge team that is well trained and well paid in all areas of corporate law, financial planning and analysis, tax accounting and other operational roles. The Closer is more experienced in managing all steps in the acquisition process with the rest of the crew. But on the other hand for a Seller, this is a first and once in a lifetime experience and because of this there is a lack of knowledge on what to do.

For the Seller, it’s highly important to state the reasons why the business is worth it to the Buyer. If you understand what drives the Buyer to then you, the Seller can have insight into how your business is valued. For example, if the Seller is doing business in a market that the Buyer wants to tap into then buying the business will be extremely beneficial to the Buyer. The same thing goes for if a Seller has a product or intellectual property that the Buyer wants to sell to his existing customers. If the Buyer can bring in billions of dollars with their current customers by creating a demand for your product than the Buyer has a built-in distribution strategy where all they have to do is introduce your product to their people which is a good reason to buy another Sellers business. If everything is done right then income should come fairly quickly. How much do you think your company would be worth if this was the case?

Your company value is equal to the profits a Buyer can make from the purchase

If this is true then the value is not based on past profits, but this is what most Buyers want you to believe. A smart buyer isn’t going to disclose their synergies to a Seller. The mentality behind this is that their synergies are the leverage that can only be enabled by a purchase and less with your decision to sell. I’ve heard many Buyers say: “If you, the Seller, are able to get such an increase without us then you would have done it already.”

So, Small Business Owner, how are you going to sell your company to a billion dollar acquirer while still getting the value of your synergies in order to get the best price?

This will be talked about in the next few articles. Make sure you Join Our Mailing List at the bottom of the website for future tips and tricks!

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