If you’re considering an exit, it’s easy to assume that your competitor may be the most logical buyer. However, depending on the size and stage of your company and your goals for continuity, valuation, transaction structure and other factors, your company may be highly sought-after by a wide range of buyer types.
One of the advantages of enlisting the help of a trusted investment banker is our ability to market your company to the full universe of potential buyers. Having multiple options drives competitive tension and gives you the flexibility to choose the transaction structure, valuation and other terms that help you accomplish your goals during the sale of your company. Explore six potential buyers for your privately-owned, middle-market company below.
When company owners consider potential buyers for their company, they often think of strategic buyers. A strategic buyer is an operating company in the same or adjacent industry that purchases a company in order to capture synergies and/or for other strategic reasons. Strategic buyers may or may not be a competitor to your company.
Because of their ability to capitalize on shared synergies, strategic buyers may value their target company at a premium compared to other types of buyers. To best position your company to sell to a strategic, consider what value your company would offer in terms of new product offerings, enhanced geographic footprint, additional customer verticals and segments and the buyer’s increased ability to pursue expansion strategies. A qualified M&A advisor like Bridgepoint can craft the story that best positions your company to communicate those synergies to strategic buyers.
Many company owners do not realize that their ideal buyer might instead be a financial buyer, not a strategic. Financial buyers, which generally include private equity groups and family offices, are primarily interested in the financial return that can be achieved by purchasing, growing and later exiting the company by selling to a strategic, selling to another financial buyer or taking it public.
Depending on the company owner’s priorities and goals, private equity groups can make a great partner or buyer for privately-owned, middle-market companies and they may be open to a variety of outcomes ranging from a partial sale (such as a minority or majority recapitalization) to a complete sale.
Depending on the size of your company and the dynamics and skill sets within your family, a family member may be a great potential buyer for family-owned companies. Selling your company to a family member offers a succession plan that continues its legacy by keeping the company within the family. Often, however, this results in less than full payment/liquidity at closing, and often a need for seller financing.
For some companies, your company’s employees might be the perfect buyer. Two common ways to sell your company to your employees include ESOPs and MBOs.
- ESOP: An ESOP, or employee stock ownership plan, gives employees ownership interest in a company. This method creates shareholder liquidity, a succession plan and alignment between the employees’ and company’s interests.
- MBO: An MBO, or management buyout, occurs when members of the company’s management team purchases the company’s assets and operations. This creates shareholder liquidity and allows management team members to exert more control over the company and reap the rewards from their efforts in the future.
A SPAC, or special purpose acquisition company, is another liquidity option available for some companies on the larger, more established end of the middle market. SPACs (also called blank-check companies) are non-operating, publicly-listed companies whose sole purpose is to identify and acquire a private company with whom they merge, taking the acquisition target public in the process. SPACs may be a potential buyer for larger private companies who are not yet large enough to do an IPO. Learn more about SPACs and how they ay benefit middle-market companies here.
Larger, more established private companies may be able to sell their company to public investors via an IPO. An IPO, or initial public offering, raises capital and/or creates partial liquidity for the company’s ownership and investors.
Not sure if you want to sell your company? Explore 3 ways to get liquidity from your company without selling it in our blog post here. For more information about liquidity and exit alternatives, download our complimentary guide for company owners here.