Selling a business: 9 types of buyers

By Emma Peterson.

When it comes to selling your business, you want to make sure it ends up in good hands. Here’s a closer look at the kind of buyers you might be dealing with.

Selling your business can be a complicated and emotional process. It is something that you’ve put blood, sweat and tears into and you want to make sure that whoever purchases is will care about it like you did. But finding a buyer can be difficult, which is where consulting businesses like the Maven Group come into the picture. They can help owners look at the state of their business, the market conditions and their goals in order to find the right buyer for the business. Oftentimes that buyer will fall into one of the nine following categories:

1 – Strategic

A strategic buyer is often another company that is already established in your industry or a related sector. These buyers are often willing to pay a premium for the strategic addition of your business’ market share along with access to new technology and resources. However, they often have pre-established cultures and operations, so it’s important to make sure that they will take care of your employees through and after the transition.

2 – Private equity

This type of buyer is usually in the form of a firm. They purchase companies with the intention of improving their profitability and then selling them for more than they bought them for later. While in some cases this means the team and culture you built will stay in place and have opportunities of growth, it runs the risk of profit-maximization methods intended to cut costs and might harm that team and the company in the long run.  

3 – Management buyout

In this scenario, your management team would be purchasing the company from you. Often done with outside financial backing, this means that the company would keep the same leadership, operations and culture. However, it is a huge financial leap for the management team and relying on outside financial backing can be very risky.  

4 – Employee stocks

If you want to sell to your employees, you would probably use an employee stock ownership plan (ESOP). This structure allows you to keep the company culture as your employees gain shares over time. Not only does this reward your employees, but it can also be structured in an advantageous way for taxes. However, it is a more complicated plano to enact. This is a scenario where the Maven Group’s team of experts can be incredibly helpful.

5 – Partial sale

There are times and situations where you might not want to be running the company every day but still want to be involved. This is when a partial sale, also known as an equity recapitalization, can be a good option. In this scenario, you sell a portion of the business to outside investors, but you retain some of the equity. This allows you to take a step back while still being a part of the company’s future growth. However, it does mean having less control and can lead to conflicts with new owners/investors if they want to employ a future strategy you don’t agree with.

6 – Public stocks

Also called an initial public offering (IPO), this is when you sell shares of your company through a public stock exchange. Not only does this open up a high potential for significant returns, but it also increases the visibility of the company. It is important to note that that visibility can be a double-edged sword, as it means losing privacy and control. Further, this option can be very complex and a lot of work up front.  

7 – Mergers

This is something you’ve probably heard a lot about in the roofing industry in the last year, but a merger is simply when one company combines with another. In this scenario, shareholders from both sides often get equity in the new, merged company. This requires letting go of some autonomy and being prepared for potential culture clashes, but it brings the benefits of shared resources and market growth.

8 – Liquidation  

When you liquidate a company, you sell off all the assets and close down shop. While simple and straightforward, this option often yields the lowest return and your existing team will all lose their jobs.

9 – Succession

This, passing a business on to a family member or heir, is also very common in the roofing industry. The benefits of this choice include keeping the business in the family and retaining your legacy. However, it is important to look at the possible emotional impacts of having to choose who receives the business and operational concerns of who is prepared to run the business.  

If you are considering any of these options for selling your business, make sure you are ready for the different financial, legal and operational implications of your choice by talking to experts like the Maven Group.