Who are the financial buyers in a business transfer, and what are their motives?
A financial buyer is an investor, often a private equity fund, an investment company or a family office, that company takes over with the goal of achieving a return on investment. While a strategic buyer typically looks for synergy benefits, expanding market share, or strengthening its own operations, a financial buyer focuses primarily on value creation and a future sale at a profit.
In a business transfer, the distinction between a financial and a strategic buyer is crucial. It influences the terms of the deal, the entrepreneur's role after the transfer, and the company's growth direction. For small and family-owned businesses, choosing a financial buyer can offer new opportunities, but it also presents specific challenges.
In this blog, you'll learn who financial buyers are, what their motives are, the associated benefits and risks, and why engaging an independent advisor is essential in this process.
Who are financial buyers?
Financial buyers are parties such as private equity funds, investment firms, and family offices that acquire a company to achieve a financial return. They do not focus on synergy but on value creation and future growth. sale. A financial buyer can choose a minority interest, in which the entrepreneur retains control, or a majority interest, in which the buyer takes charge and the entrepreneur often remains in an advisory role.
1. Private equity
Private equity funds invest in companies with growth potential, often acquiring a majority stake. Their goal is to grow the company over a few years and then sell it at a profit.
2. Investment companies
Investment firms are similar to private equity firms, but often have a broader focus. They can invest in both majority and minority stakes and actively influence strategy and professionalization.
3. Family offices
Family offices manage the assets of wealthy families and often invest in SMEs and family businesses. They typically have a longer investment horizon and offer more stability than private equity.
What are the motives of the financial buyer?
The primary motivations of a financial buyer are achieving returns, realizing growth, and spreading risks. These motivations determine how the buyer views your company and the strategy they employ during the business transfer.
1. Return on Investment (ROI)
A financial buyer strives for an attractive return on their investment in your company. This means they always consider profitability and future value development.
2. Growth through buy and build strategy
Many financial buyers use a buy and build strategy where multiple companies are combined to create economies of scale. This leads to growth, professionalization, and a stronger market position.
3. Risk diversification and sector interest
By investing in multiple companies, a financial buyer can diversify risks and achieve more stable returns. They also often have a specific interest in sectors with significant growth potential, such as technology, healthcare, or manufacturing.
What are the benefits for the selling entrepreneur?
The advantages of selling to a financial buyer relate to the growth opportunities, the role the entrepreneur can retain, and the professionalization that often follows. By understanding these factors, you can determine whether a financial buyer is right for your situation.
Capital injection and growth
: A financial buyer provides new capital, enabling investments in growth, innovation, or expansion. This can help the company move forward faster than it would be able to on its own.
Role of the entrepreneur
: Many financial buyers find it valuable if the entrepreneur remains involved after the transfer. This allows you to leverage your knowledge and network while simultaneously transferring some of the responsibility.
Professionalization of the organization
: The arrival of a financial buyer often leads to improved processes and the addition of new expertise. This can lead to greater efficiency, a stronger management team, and greater market clout.
Value for the future
: Partnering with a financial buyer can better position the company for a subsequent sale or further growth. This not only strengthens the present but also secures the company's future.
What are the points to consider when selling to a financial buyer?
Collaborating with a financial buyer presents not only opportunities but also certain considerations. These relate to the focus on returns, the impact on corporate culture, and the degree of control you retain.
Focus on returns
: A financial buyer is strongly focused on profit and value creation. This can lead to pressure to achieve results quickly and choices that don't always align with the entrepreneur's long-term vision.
Performance pressure and KPIs
: After the acquisition, clear objectives and measurable results are often established. For some entrepreneurs, this performance pressure can be intense or restrictive.
Loss of autonomy
: With a majority stake, the financial buyer has control over the company. This means that you, as an entrepreneur, have less freedom to make decisions, and strategic choices are often determined by the buyer.
Impact on corporate culture
: A financial buyer can implement changes in management, processes, or working methods. This can shift the company culture, sometimes creating tension within the team or among employees.
What does the sales process to a financial buyer look like?
Selling a company to a financial buyer involves several standard steps. Below, you'll find how this process typically works and the key considerations.
Step 1: Preparation and valuation
The process starts with good preparation. This includes carrying out a valuation, developing a sales strategy and gathering all necessary financial and legal documentation.
Step 2: Preparing sales documentation
Next, the sales documentation is compiled, including a information memorandum and a company profile. These documents provide potential buyers with a complete and reliable picture of your company.
Step 3: Select and approach buyers
Together with an advisor, we'll compile a list of financial buyers that are a good fit for your business. These parties will be approached with the appropriate documentation, and an initial selection will be made.
Step 4: Negotiations and letter of intent
After the first bids Negotiations on the terms of the transaction follow. When agreement is reached, this is recorded in a Letter of Intent (LOI).
Step 5: Due diligence and contracts
The financial buyer carries out due diligence to verify all provided information. The final contracts are then drawn up and the final negotiation phase takes place.
Step 6: Closing and transfer
The process concludes with the signing of the purchase agreement and the transfer of the business. Payment is made according to the agreed terms, and the buyer officially takes over management.
Is a financial buyer best for my business?
Whether a financial buyer is the best fit for your company depends on your personal goals, the stage of your business, and your future plans. Therefore, it's important to carefully consider what a financial buyer can offer and the implications for you and your company.
Your personal goals
: If you want to withdraw and primarily benefit financially, a financial buyer may be attractive. If you want to maintain influence on the company's course, a strategic buyer often more appropriate.
Stage of the enterprise
: Companies with strong growth potential are often attractive to financial buyers looking to build value. If your company has less room for growth, a buyer with strategic motivations may be a better fit.
Future plans for the company
: A financial buyer primarily focuses on returns and future sales. If you value cultural continuity and long-term commitment, it's wise to consider alternatives as well.
Tips for entrepreneurs selling to a financial buyer
The most important tips for entrepreneurs who want to sell their business to a financial buyer are timely preparation, ensuring robust administrative procedures, defining their own role, and seeking independent advice. By following these steps, you increase the chances of a successful and smooth transfer.
Timely preparation
: Begin the sales process well in advance to ensure there's enough time to prepare the business for sale. Good preparation increases buyer appeal and strengthens your negotiating position.
Strong administration
: Ensure your financial records and business documentation are complete and transparent. This gives the buyer confidence and prevents delays during due diligence.
Determining your own role
: Consider in advance the level of involvement you want to maintain after the transfer. A clear understanding of your role will help you find a buyer who aligns with your needs.
Independent advice
: Engage an independent advisor who will put your interests first. This will help you objectively guide the process and make the right decisions in negotiations.
Why choose Match Plan?
Match Plan has over 30 years of experience in business transfers and guides entrepreneurs, managing directors, and family businesses through important decisions. As independent advisors, we always prioritize the entrepreneur's interests and ensure a process tailored to your personal situation and future plans. We can support you with:
- Independent guidance during negotiations with financial buyers.
- Carrying out valuations that provide a fair and realistic picture.
- Structuring financing that suits the stage and strategy of your company.
- Advice and guidance on purchase and sales processes within SMEs and family businesses.
Contact us for a no-obligation consultation and discover how we can help you successfully complete the sale to a financial buyer.
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