Most entrepreneurs are focused on growth and understandably so. However, when it comes time to exit, having a viable exit plan is just as critical as any growth plan. This exit plan takes on a heightened level of importance when selling to an external buyer. In a lot of cases, the entrepreneur has spent years and decades building up the business to the point where the identities of the business and the entrepreneur are intertwined. Selecting the wrong buyer can thus have grave consequences wherein time-honoured legacies can get marred and dissolved. So how exactly do you prevent this from happening to your business?
1) Understand the buyer’s business and priorities
The highest bidder is not necessarily the best buyer who will work to preserve the business’s legacy. By studying the buyer’s business model and operations, you can evaluate what purpose their acquisition of your company would achieve. In a lot of cases, buyers may be looking to buy the business as it would expand their access to new markets and/or products. In other cases though, the buyer may simply be looking to strip out certain assets or even worse, remove a competitor off the market to establish greater pricing power.
From a legacy standpoint, this could be highly detrimental as in such cases, the buyer would ultimately look to realize cost synergies by laying off your former workers (not to mention the adverse impact to the brand that such actions would cause). Therefore, discussing what each buyer would do with the business and understanding how your business fits within their long-term priorities can go a long way in selecting the right buyer for your company.
2) Succession planning
Buyers that don’t have an established or identified management team ready to take over the business are probably buyers that you want to stay away from if legacy is a major consideration. Most business owners will agree that a strong management team is critical to long-term business success. So if the buyer you are courting doesn’t even have a leadership team in place to pick up where you left off, the chances of them being a good fit are slim. Work instead with buyers who have conviction in your business, how it can help them achieve their own growth plans and who will be best-placed to lead it from their end.
3) Buyer culture and brand
History is littered with poorly executed M&As which made financial sense, but faltered because of differing cultures. Therefore, while the buyer would certainly do due diligence on your business, it is also important for you as a business owner to do your due diligence on the buyer. Gaining an understanding of the culture they foster and the external brand they have in the community can enable you to decide whether they are an acquirer who would strengthen your legacy or not. This can be done through multiple ways including stakeholder interviews, site visits, observation, media analysis etc.
All in all, it is important to sell to a buyer whose priorities align with yours as a business owner. While the financial merits of a transaction often tend to overshadow other factors at play, if the legacy of your business is important to you, then work with financial advisors who understand this and will screen, source and present suitable buyers accordingly.