Posted on 4 February 2016
Buyer research is a critical element of the disposal process, as identifying the correct purchaser is key to the vendor getting the optimal price and other exit terms which they desire.
In order to locate the optimal purchaser, the advisor must first fully understand the vendors’ objectives. Fully understanding these objectives will allow the advisors to make decisions on:
Which buyers should be targeted?
There are a number of exit routes which the vendor could take including:
Sale to a private individual;
Sale to a trade buyer – competitors, companies in related sectors, suppliers and customers;
Sale to management (MBO), management buy-in (MBI), buy-in management buy-out (BIMBO).
Fully understanding the objectives of the vendor will allow the advisor to target their research more accurately to the specific groups of buyers which will give the vendors an acceptable exit route.
How is the business going to be presented?
Once the advisor has concluded on which groups of buyers’ best fit the vendors’ objectives, it is critical that the business is presented in a way which will be attractive to them; and this may involve specifically tailoring the sales information memorandum to:
Identifying synergies which could be realised by the buyer, in order to attract a premium price;
Identifying funding capacity, management capabilities, IPR, etc. within the company which the purchaser could utilise.
This is a key element of the sale process as presenting the business in a way which is most suitable to the vendors’ preferred buyer group is inevitably going to result in the best offers.
How is the deal to be structured?
By understanding the vendor’s objectives the advisor will be able to target purchasers who are able to deliver the deal in an acceptable structure. For example there would be no point in targeting a purchaser who can only offer shares as consideration if the vendor is looking for a clean break from the business through cash consideration.
Ultimately the optimal purchaser will be one who; is willing to pay a premium price for the business, will be able to add real value, is acceptable to the management team, customers and suppliers, has a good understanding of the business and can deliver the deal to the preferred terms of the vendor.
To conclude, the use of intelligent buyer research not only enables the advisor to locate the “needle in the hay stack”, it also ensures that the needle is the correct length, width and has the best eye to do its job.
If you are considering an exit in the near future and would like advice on the possible routes, please contact a member of the Corporate Finance team at Smith Cooper.