Actionable insights straight to your inbox

Equities logo

How To Identify a Great Buyer for Your Business

It's not just about the price.
Nick McLean is a founder and partner of Four Pillars Investors, an investment company that purchases and operates middle-market businesses that have untapped potential for growth.
Nick McLean is a founder and partner of Four Pillars Investors, an investment company that purchases and operates middle-market businesses that have untapped potential for growth.

Image source: StartupStockPhotos / Pixabay

Businesses are built on relationships — and those relationships are built on trust, likability and communication. Without those three pillars, businesses and the deals bolstering them can fail. Of course, numbers are an incredibly valuable consideration when selling a business, but they can’t be the only focal point of the conversation.

Private equity firms and strategic acquirers will certainly have sufficient funds to throw at you, and the representatives they send for conversations might be people with whom you enjoy sharing a meal. The true diligence, however, occurs in making sure the purchasing firm aligns with your values.

Do you want your company listed alongside that firm's assets? If not, you’ll want to consider another firm. Alternately, another company might seek to acquire your business. Most often, this other company will be a competitor and, aside from trusting your gut’s ability to determine whether or not the prospective buyer is the right choice, you’ll want to safeguard company information in the event that the sale doesn’t proceed as planned.

In short, the conditions to sell your business should be aligned with your values — and not simply be a function of whoever makes the highest bid. Considering how to find a buyer for your business really involves seeking the best partner for your business to ensure long-term success.

Considering Buyer Fit Along With the Bid

At Four Pillars Investors, we believe that relationships are the cornerstone for success. The idea of “value” involves measures of both quantity and quality. To sell your business to someone who doesn’t seek to uphold your mission will be detrimental in the long run, no matter the monetary bid is. What makes a good buyer extends beyond the money it brings to the table and should seriously focus on the ideals represented.

Just consider customer and employee relationships. If the prospective buyer is a competitor that’s aligned with your values, these considerations will be a bit more seamless. But if the competitor sits opposite of your company's values, you’ll want to seek information on how detrimental that might be for your employees and customer base.

With nearly 60% of Millennials and about half of Generation Xers and Baby Boomers seeking to align their values with those of their employer, permitting an acquisition that would undermine your original core values could let down loyal tenured employees. Customers also spend with their core beliefs, so selling your business to a qualified buyer that might deter present customers could run the risk of a total remodel — or a failure of your life’s work.

3 Pointers for Considering a Prospective Buyer’s ‘Fit’

All in all, a good buyer is someone who can bring an adequate bid to the table as well as agree to fair negotiations in terms of company mission and practices. In turn, these actions safeguard what you’ve built; you’re ensuring that both parties are partners in business, keeping the longevity of the company as a top priority in the selling process. Here are some additional ways to determine whether a prospective buyer will protect what you’ve spent so much time creating:

1. Maintain a healthy degree of oversight.

Even if you’re not planning to stay on after you sell your business, you’ll want to conduct a sale as if you might. If you were to remain employed after a sale, what would you want the company to be? What would your role be? What insights might you provide the buyer in order to ensure the longevity of the business? You’ll want to consider each avenue, from customers to low-level employees to managerial team and to higher-ups.

Negotiating what you want the company to look like for the buyer in the long run will help ensure that your business stays aligned with your values while also weeding out any prospective buyers that can’t meet those requirements.

2. Consider company vision compatibility.

With global mergers and acquisitions reaching an all-time high in 2021, it’s important to herald the pillar of trust in prospective deals. A good buyer is someone who actually wants your company for its value and assets, and not just because they’re looking for the next great deal or cash cow. Ensure that both parties have the same five-year vision for the company (or even longer). If your goals for the future are aligned, that’s a definite positive.

3. Conduct an "airport test."

Similar to the elevator test, an airport test determines whether or not you’d want to be stuck at an airport with a prospective buyer. Imagine this scenario: There’s a snowstorm, and your flight’s been delayed three times already… with another delay on the way. There’s only so much Wordle a person can play. So you turn to the person next to you (who, in this scenario, is the prospective buyer). Do you enjoy conversing with them? Whereas something like an interview can rely heavily on work experience and a résumé, an airport test is unofficial and tends to be more candid. It’s more based to a person’s core values, hobbies, interests or overall personhood. Essentially, if you can’t imagine being stuck in an airport with this person, you shouldn’t be selling your business. And if you get along, you’re more likely to be partners in business than adversaries.

It bears repeating that because trust, communication and likability are so important in business, the selling of a business should be no different. Trust your gut as to whether a prospective buyer is a good fit. But beyond that, do your homework. Money shouldn’t be the only consideration. Even though it might be evidence of success, it rarely precedes it.

Nick McLean is a founder and partner of Four Pillars Investors, an investment company that purchases and operates middle-market businesses that have an untapped potential for growth.


Equities News Contributor: Nick McLean

Source: Equities News

A weekly five-point roundup of critical events in the energy transition and the implications of climate change for business and finance.