–SINCE 1982–

Selling a Business to an Industry Buyer

Our firm continues to work with more and more industry buyers who are very active in today’s M&A market. In many cases, these buyers are in the same industry looking to acquire a business in Colorado or in a nearby geographic market. While working with industry buyers can help increase the market price of a business, there are disadvantages as well.

Below are three key aspects to consider when selling to an industry buyer.

  1. Overhead Synergies such as financial reporting, accounting, and human resources can often help drive more cash flow to the bottom line.   An industry buyer with similar locations can leverage their overhead resources (commonly referred to as “G&A”) to consolidate and reduce ongoing expenses.  However, there are often one-time costs in the acquisition that need to be considered before realizing these savings. Many industry buyers will discount the savings for these synergies before adding them back into the overall cash flow of the business.
  2. More Financing Options are usually available with industry buyers as many have set aside cash specifically for acquisitions.   In addition, they will often put a management level individual in place with the goal to initially find and evaluate potential businesses.   We’ve seen this more recently with international companies looking for additional US locations.   While one business may seem like a perfect fit for an industry buyer, there are still many aspects to consider.  One aspect can be a recent acquisition that may draw more resources than anticipated and greatly affect the buyer’s readiness for the next acquisition.   Like one of those 1000+ piece jigsaw puzzles, each business needs to be the right piece in the buyer’s overall strategy but when it comes together the process can move quickly especially when outside financing is not required.
  3. Preconceived Valuation Metrics of a business can be an issue especially if the industry buyer is much larger in size.   These valuation metrics may be very different than those used in the original valuation of the business.   These can include gross/net margin percentages, cost of goods sold ratios, revenue per employee, sales per square foot, etc.  Industry buyers will often discount a business because they better understand the nuances of existing market conditions verses a buyer outside the industry who may end up valuing the business more because they’re “buying into” a new market.

Using both inbound and outbound marketing approaches, industry buyers are just one of the many types of buyers our firm attracts to help maximize the market value for our clients. The majority of our business comes from referrals and we appreciate your continued trust in our firm.

Robert W. Amerine
President, Certified Business Intermediary (CBI)