Strategic Buyers - The Holy Grail
Most business valuations are conducted on the basis of “Fair Market” value which is broadly defined as the value a willing buyer would pay a willing seller when neither is acting under compulsion i.e. the seller doesn’t have to sell and the buyer doesn’t have to buy.
Strategic buyers however do have a high degree of compulsion, they really want to acquire this particular business because it will give them access to a new product line, expand their geographic territory into an area they are weak in or they are afraid that if they don’t buy this particular business their competitor will and they will have a real battle on their hands. Strong buyer compulsion amongst two or more potential buyers is exactly what a business broker is aiming for. When that happens “Fair Market” value goes out the window and the strategic buyers motives rather than multiples of any kind drive the final selling price of the business.
Two key things to remember however:-
- Only a small percentage of businesses have strategic value. In general the smaller the business the less likely it is to have any strategic value.
- Strategic buyers, like all business buyers, seek to pay the minimum possible for their acquisition. The only practical way to force a strategic buyer to pay the maximum they can commercially justify is to have more than one buyer at the table.
When planning the sale of your business objectively evaluate whether or not it could have strategic value to another business in the same or similar sector, a regional competitor who has never been able to break into your geographic area because of the strength of your business or an international company who could use your business as a platform for breaking into the Irish market. If it does then make sure you take full advantage.
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