Who Will Buy?

There is no doubt that the Covid 19 pandemic has made us all stop and think about what comes next and how we want to change our working lives as both the country and the economy recover. Because of that an increasing number of business owners are thinking about selling their businesses and asking what the options are.

Put simply, if you want to sell your business, there are three options:

1. Sell it to an existing customer, supplier or competitor.

There is an argument that you know your business best and so you will have the best idea as to who will buy it.  All of these people already have links to your business, know and understand the goods or services you provide and may have excellent reasons for wanting to buy all or part of your business.  A customer may feel that owning your business gives them greater control over their supply chain, a supplier may feel that owning your business allows them access to the end customer and gives them the ability to improve margins and a competitor may feel that owning your business allows them to access new customers or make economies of scale.  If you are uncomfortable at the thought of raising the potential of a sale directly with a likely buyer, then a professional adviser can help to initiate discussions and broker a deal.

2. Put it up for sale on the open market.

There may be potential buyers for your business out there who are completely unknown to you, possibly in other countries or sectors, who are looking to acquire a business just like yours and may be willing to pay more than potential buyers already known to you.  To access these “unknown” buyers you will need to appoint a professional adviser to market the business and negotiate a deal.  Given that in this scenario they are actually finding the buyer for you, their fees will be linked to the overall price achieved and will be considerably more than if you found the buyer yourself.

3. Sell to Existing Management.

At the moment third party buyers are understandably nervous.  They want to wait for greater economic stability and are finding it difficult to agree with sellers on a value for the business.  Recent trading patterns will not reflect “normal” activity levels meaning that buyers are concerned about overpaying for business and owners are unhappy that prices don’t reflect the post pandemic value of their business.  That being the case existing management can be the ideal buyers.  Although they may pay less than the “open market” value, they are often willing buyers because they already know and understand the business and how to make sure it fulfils its potential.  This type of sale can preserve jobs and existing relationships and allows flexibility for all parties.  Often the consideration is paid over a period of time and in a way that maximises tax benefits.  Where you know the buyer, having some of the price deferred is less risky than when dealing with a third party.  That, together with the option to ensure continuity and preserve jobs, can make this a very attractive option if you have the right management team in place.

If you want to discuss how best to plan your exit and get your business ready for sale, then contact a member of our Corporate Team.  

Disclaimer 
The matter in this publication is based on our current understanding of the law.  The information provides only an overview of the law in force at the date hereof and has been produced for general information purposes only. Professional advice should always be sought before taking any action in reliance of the information. Accordingly, Davidson Chalmers Stewart LLP does not take any responsibility for losses incurred by any person through acting or failing to act on the basis of anything contained in this publication.