A FINANCIAL BUYER FOR YOUR BUSINESS
My partner and I recently met with the Managing Member of a Private Equity Fund who is seeking to make a new investment in a business with revenue between $2 million and $20 million. He was referred to us by someone thinking there could be synergy between our firm and his, as we are regularly in contact with business owners desirous of selling their business.
As we sought to understand the nature of the business the gentleman was hoping to purchase, he informed us that he had been searching for some time, had not a few professionals searching for him, and had performed due diligence on several businesses.
His due diligence includes tests for robust cash flow, a capable management team that was incentivized to remain in place at the sale, a diversified customer base, operations that would support growth, financial controls, and other value drivers. Despite all of this effort, he was still searching for a business that met his parameters and demonstrated "transferable value". The transferable value is the value of a business apart from its owner. One other important point -- it is not like this gentleman has narrowed his search to one or two industries. He clarified to us that he would consider a business in any industry (other than a government contracting firm) within a 50-mile radius of Washington, DC.
As we explained to the gentleman our services and capabilities of building transferable value and exit planning, he responded "Based on my experience, there are many business owners who need what you do because they have not built a business that is transferable".
A business that has transferable value is characterized by...
Next level management
Systems and operations to support growth
Recurring revenue
Diversified customer base
Proven growth strategy
Demonstrated scalability
Financial planning and controls
Will you and your business be ready if a "strategic" or "financial" buyer expresses interest in purchasing your business? Do you know how much $$$$ you will need net of taxes? Based on valuation and market conditions, will you know if their offer is reasonable? Will the business pass pre-sale due diligence tests of a capable management team incentivized to remain at the sale, diversified customer base, and financial controls?
The gentleman commented that owners seem to think they can hurry up and get the business ready for sale when the owner is ready to sell, and how that simply isn't realistic. To pass the due diligence of a financial or strategic buyer willing to pay what you want or need, you must begin planning and building years in advance.
