Know which type of acquirer may be best for your company at time of sale
A common question we get from company owners is who is most likely to have interest in acquiring their business? The first part of our reply is you want to build a business that will be attractive to the largest number and type of potential acquirers simply because this will generally get you the best competitive offer. The second part of the answer is explaining what 3rd party options they may have.
Venture Capital – the name implies their focus, which is on businesses that are “venturing” into the market so their interest most often is on investing/acquiring earlier stage, less mature companies. VC firms many times invest/acquire pre-revenue or early revenue businesses that need capital and outside expertise to help them scale. And these days, many VC firms are technology focused and want to acquire software or tech oriented businesses.
Private Equity – the name implies their focus, which is they take an equity stake most often in private companies that are more mature and established in the market. Private Equity firms are also called financial sponsors because they are strong at bringing capital to help an established company scale to new heights. They leave the early-stage businesses to the VC firms and the PE firms focus on companies with established products/services, customers and revenue streams.
Strategics – the name implies their focus which is they strategically understand and operate in your industry. Strategics are well-established companies and are often direct or indirect competitors to your company. They look for businesses that will enable and complement their products/services and/or customers/markets. It’s often said amongst acquisition professionals that your best offer may come from a Strategic acquirer because they can factor synergies into their valuation model. Over the last few years however, Private Equity has sharpened their pencils to compete with Strategics so they too are making strong offers for solid businesses.
A note on PE that has invested in a business that serves in your industry, these are called Quasi Strategic acquirers. Meaning they are a PE group but because they already own a business in your sector, they also act as a strategic acquirer because of the potential synergies that may exist with your company.
For most sellers, they won’t be attractive to all 3 of these potential acquirer types. Early-stage companies will most often be attractive to VC and potentially a Strategic. More mature, established companies are more attractive to PE or Strategic acquirers. Knowing which of these will be in your future is important to begin identifying now because it will help you in making important business decisions today. Decisions you’re making in the near term related to your company will increase or decrease the interest a future acquirer may have in your business. Start giving this thought today and ensure you’re building a business with optimal attractiveness to future acquirers and increase the likelihood of achieving your future euphoric exit event.
