Financial buyers and Strategic Buyers by hkksew3563rd


									?Financial buyers can carry several disadvantages:

1. Little interest in improving the business. They often leave businesses unimproved,
since they may intend to resell the company later. Also, they may not grant you access
to their superior resources (such as better marketing and sales staff).
2. Financial pressure. The buyer will focus on increasing cash flow to pay off the debt
they acquired to purchase your business.
3. Deal-making focus. They may sell your business again soon after buying, which
means additional turmoil for your employees and clients.

On the other hand, strategic buyers do expect to complement your business with their
sales, product and support staff. They may not pay a premium because they know the
market better than a financial buyer. They often look for acquisitions that support their
strategic plans. However, the seller may not have as great a role in decisions and
operations - particularly if your goals are different from theirs.

Whichever type of buyer you attract, you can be sure that financial statements will be
the most important part of their decision. Audited statements are preferred by buyers
and their bankers. When the buyer examines your statements closely, you'll find that
audited statements help the buyer reduce his risk. This will attract more potential
partners, thus strengthening your negotiating position.

Don't try to sidestep audit costs by simply having an accountant review your
financials. That's better than no review at all, but it's still not as good as an audited
statement. If you have inventory, you may also need retroactive audited statements.

Aside from financials, demonstrate the depth of your management team. There is less
risk (and thus more value) when there is a team of managers supporting the owner.

Also, concentrate on what you do best. Drop weak product lines and focus on your
core competencies. If you are diversified, break down financials by product line or
service provided to help them determine which lines are strongest. Similarly, drop
assets (such as undeveloped land) that do not add to the bottom line earnings.
Consider whether to offer the buyer your business, or simply its assets and liabilities.
The tax laws favor buyers when they only buy assets, but this usually means the seller
will pay more taxes afterwards. Have your accountant document the differences.

If you use an intermediary such as a broker, they will prepare "books" (formally
known as "selling memoranda") which present data about your company and why it is
a good acquisition. You will generally find it better to do a business plan of your own
and present your own financial projections. Advantages include:
?     Always a sound management technique, regardless of your possible intentions to
?     No indication to buyers how long you've been on the market.
?    No tip-off to employees that the business is for sale.
?    No urgency conveyed for a sale.
?    No outside broker pressure to rush into a deal.

Buyers and brokers can become bothersome, constantly calling owners to convince
them to "at least talk about" selling. Brokers may be "fishing" for leads without any
real buyers on board. Or they may represent several buyers and work on a
contingency. Also, a broker may claim to represent a high-profile buyer, then delivers
only substandard speculators.

If a broker writes with specifics about a buyer's interest, it may be worth following
through to get details - but make it clear you're not currently interested in selling.
Make sure you've thought through all the consequences better you agree to work with
a broker. Don't get locked into one broker and one buyer's schedule: having your
choice of multiple opportunities gives you much more power.

Be sure you've anticipated the fallout in case a deal does fall through. Early in the
process, the risk is low and confidentiality easy to maintain. Once there is a letter of
intent, you'll have to back away from other offers. And once the would-be buyer
begins due diligence, your employees are bound to find out. Due diligence can cause
disruptions for weeks, and even then, there's no guarantee the letter of intent will lead
to a sale. In fact, many deals stall or are overhauled at this point. A bad outcome at
this point often reflects badly on your firm to clients, competitors, staff and other
potential buyers. is a service for buyers & sellers, looking for International Trade Leads,
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