Selling your business can be a challenge, especially if yours is a mid-market company with above $30 million in revenue and trading internationally. This is because most business brokers in New Zealand are only familiar with selling smaller businesses (less than $5 million in revenue). It can be challenging to find someone who is both familiar with the global market as well as the New Zealand market, and has the experience and knowledge needed to attract buyers globally who will acquire your business for strategic reasons.
Strategic and Financial Exits Explained
You have invested a lot of time and resources in growing your company over the years, and now, when you have chosen to leave it, undoubtedly, you will want to receive maximum financial value for all the hard work. The return you will receive will largely depend on whether you achieve a financial or strategic exit.
Strategic buyers are those looking to purchase a company that fits in with their corporate/company strategy, enabling them to achieve certain strategic elements, key thrusts, key capabilities and/or differentiation. Financial buyers determine the potential value of the business using some multiple of EBITDA. They may already own a wide range of companies but are looking to buy on expected returns, not because it fits in with an existing strategic goal.
In other words, a strategic buyer is looking for synergies between your company and theirs, whereas a financial buyer is looking at purely the economic gains to be made from your company alone.
Generally, strategic buyers are willing to pay more for your company because they need it to further their business goals, whereas financial buyers do not. Financial buyers are looking for a good investment but are unlikely to pay more than they have to in order to acquire it.
Having the right mergers and acquisitions partner enables you to achieve your sale’s true potential value by strategically selling to strategic buyers.
How to choose the right broker for your company
When choosing a mid-market broker to sell your company, it pays to ask for proof when they say they will work to get the best deal for you. Most brokers will favour the buyers’ interests, even when they say otherwise. This is because they are more likely to receive ongoing commissions from the buyer, whereas your relationship with them is generally a one-time-only deal.
Brokers, acting on instructions from the buyer, are more likely to draw out the negotiation process, hoping you will become frustrated with the process and accept a low offer. They may also make a reasonable offer upfront but then present a lower offer during due diligence, especially if their buyer is a financial one whose main objective is to maximise returns on their investment.
A broker who works for you will seek out strategic buyers who either need your business to meet their needs or those who value your work to create an enduring brand/profitable business. They will more likely suggest auctioning/promoting your company to several buyers, ensuring you receive the price you want, not what a sole-sourced buyer is willing to make.
A good broker will also discover your company’s unique advantage on offer and then work to identify and approach the buyers who will compete to be the new owners of it.
Brokers who specialise in mergers and acquisitions (M&A) may not always be able to get you the best deal either. To protect their reputation with buyers, they cannot be seen to exceed valuations in a single industry too often, which equates to their needs coming before yours.
Plan for a strategic exit early
Marketing your company to strategic buyers requires careful planning and process. Over the years, we have found that those businesses encompassing the 7 attributes of Agile Growth are more likely to attract strategic buyers’ interest. This is because they are more likely to be able to scale and adapt to changing markets than those that haven’t. These companies have a strong company strategy with divisional strategies aligned to their company strategy, have differentiation defined, and have ensured that all key processes are repeatable, predictable, and scalable. This bodes well for a successful merger/adaptation to the buyer’s needs. Successful business strategies that are executed well, build great companies and make them attractive to others who will pay top dollar to acquire them from you.
In my experience, the business leaders who start planning early are the ones who have the best chance at achieving a successful, extraordinary exit. With the right M&A partner, the strategic exit process itself is usually a 3-year process. However, it can take 5+ years to successfully position a business for a strategic exit – depending on where the company is at when they start heading down this path. Note: Both processes can run concurrently.
SSBG are not brokers, but we have the connections and relationships here and overseas to introduce you to the global companies that specialise in mergers and acquisitions of mid-market companies. And we can help you position your company for a strategic exit that achieves maximum financial value.
For our clients with revenues above $30 million, or mid-market clients who aspire to have that, we use our incredible expertise in the field of mid-market business advisory and coaching services to provide them with clarity and a proven path towards their strategic exit. Contact us today to discuss your needs and plan for your company’s future.
