Types of Buyers for Businesses
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Types of buyers we work with to sell your business for the
most amount of money in the least amount of time.
1. Individual
Buyers, if you business is valued at less than $2mm this could be your best
buyer. Congress recently raised the cap on the SBA 7a loan program to $2mm and
many lenders willing to piggy back additional loan amounts. An individual with
a SBA 7a loan is a cash buyer for your business. Buyers can buy with 20% down
and have Loan cost, closing cost and working capital added to the loan amount.
A sub category of individual foreign buyers, these are buying seeking a Visa to
live and work in the USA
through the E-2 Investor Treaty. These are very motivated buyers as they have a
limited time to be in the USA
to find a suitable business.
2. Strategic Buyer,
this buyer is a company, having as its goal entering new markets, increasing
market share, or eliminating some element of competition.
3. Synergistic Buyer, this buyer, like the
strategic type, is usually a company. The difference is that, with this buyer,
the acquisition or merger flows from the complementary nature of the purchasing
company and the company for sale. Synergy means that the joining of the two
companies will produce more, or be worth more than just the sum of their parts.
4. Industry Buyer,
Sometimes known as "the buyer of last resort," this type is often an individual
competitor. This buyer already knows the industry well and, therefore, does not
want to pay for the expertise and knowledge of the seller. The industry buyer
is interested mainly in combining facilities, consolidating overhead, and
utilizing the combined sales forces. These buyers will pay for assets (but
probably not what the seller thinks they are worth); they will not pay for
goodwill, covenants not to compete, or consulting agreements with the
seller. There can be some cases in which
the industry buyer is also a strategic buyer, with the price determined by
motivation. These are those letters you keep getting from companies that are
smaller than your company.
5. Investment
Groups, Most in evidence of all the buyer types, Investment Groups are
influenced by a demonstrated return on investment, coupled with their ability
to get financing on as large a portion of the purchase price as possible. Working on the theory that debt is the lowest
cost of capital, these buyers purchase businesses with the sole purpose of
making the maximum amount of money with the least amount of their capital
invested. They are looking for a high cash on cash return and for businesses
that are not an extension of the current owner.
Each type of buyer has distinctive characteristics that
correlate to the motivation behind the purchase of a particular company. In addition, the price each is willing to pay
for a company is directly proportional to the motive.
The relative sizes of acquisitions by different buyer types
(compressed into their broader categories), is shown in the accompanying chart:
Type of Buyer
Less than $3 million $3 to 10
million $10 million+
Individuals 44% 26% 4%
Public Companies
28%
21%
17%
Private Companies
11% 14% 14%
Investment Groups
17%
29%
18%