Understanding the key factors business buyers seek in an acquisition
When an individual or organization looks for a business to buy, they consider several factors to ensure the acquisition will align with their goals and provide them with decent returns. One way a seller can learn more about the factors important to a buyer is to look at their company from the buyer’s perspective. The seller can then highlight the inherent value of the business, focusing on those elements important to the buyer.
Buyers often focus on financial metrics when they find a business for sale that interests them. They want to ensure the business will be profitable and prepared to grow when the purchase is complete. To determine if it will be, the buyer wants to see historical financial statements and forecasts. These documents help them see the earnings power of the business and other critical information. They use the reports to determine whether the business is valued fairly.
When reviewing the documents, buyers look for certain things. They want to see revenue growth patterns and profit margins. Working capital and benchmarks regarding return on investment are important to them. Buyers want to see strong financials and robust forecasts, so they can justify the price being asked by the seller.
The potential for growth
No person wants to buy a business that can’t grow over the years. When researching opportunities, they look for proprietary assets that give the organization an edge over competitors. These assets may include patented technologies, branded intellectual properties, and trade secrets. Exclusive partnerships help drive the price of a business up. Buyers also look for those organizations that will improve their market share through mergers and acquisitions.
Other factors that help boost the valuation of a business include products or services in high demand and those waiting for regulatory approval. Buyers want a company that has items in growing sectors and those that consumers are clamoring for. They also want to see what steps the seller has taken to increase production and meet these demands. Product roadmaps and development pipelines are appreciated during a sale, as the buyer wants to know the organization is ready to expand.
Customer base
Buyers want to see a loyal customer base. Significant turnover is a warning sign, so sellers need to show strong retention metrics when working with a buyer. They also need to have multi-year contracts in place, so the buyer knows they will have a reliable sales pipeline and revenue. Furthermore, they look for a diverse customer base. If a company only has a few clients, the loss of even one can significantly impact the organization. Diverse income streams are preferred by those looking to purchase an existing company.
To present the business in the best light, the owner should provide proof of a sticky customer base, one that is willing to pay higher prices. They should also have account management, support, and onboarding processes in place so the buyer won’t need to develop these on their own. In addition, the owner should highlight any big-name active customers. Doing so will make the business more appealing to potential buyers. They want an existing customer base that will allow them to grow and scale in the future.
Management team
Buyers appreciate having a management team in place when they purchase an existing business. They will pay more for this team, particularly during the transition process. This team has institutional knowledge that will be invaluable to the buyer. It helps to prevent business erosion once the transfer process is complete.
Buyers value strength in an organization. It falls on the seller to highlight this strength, and considering these factors allows them to do so. Buyers will be able to see the organization’s value and why it is worth purchasing.
