Knowing that strategic, financial, and industry buyers view the owner’s role post closing differently may help you as you position your business post sale. All three types of buyers will approach pricing and deal structure differently based upon their own needs, as well as the seller’s performance. Owners will view a buyer positively or negatively depending upon pricing and the role they play post closing.
Let’s first start with some definitions typical to collection agency M&A. Simply stated, a strategic buyer is an operating company from another, typically related, industry that acquires a company to expand its services and/or client base. A financial buyer, also known as a buyout firm, typically acquires majority control of a business in an industry they are not currently invested in with the goal of increasing shareholder value and reselling their stake at some point in the future. An industry buyer is a company that acquires another business from the same industry, typically for expansion purposes.
To ensure that owners achieve the outcome that they are striving for in a sale, two critical things should occur prior to interactions with any buyers:
- Realistically assess the role that you, as an owner, are currently performing within your business. Owners may be too close to the company to determine the true role(s) they are playing. It is best to have an objective viewpoint from a third-party and to determine, in advance of a sale, how a potential buyer might perceive the owner’s role.
- Determine if other staff members already exist within the operation that can perform the services performed by the owner. Once that’s determined, start transitioning those responsibilities to other staff members prior to approaching a buyer about a sale. Give the person a reasonable amount of time to absorb new responsibilities and grow within a new position. Like dominoes falling, transitioning responsibilities will impact other individuals throughout the business, so give yourself more time than budgeted to work through the changes.
A few years back, Kaulkin Ginsberg advised the owners of a middle-market service business in a sale. We quickly learned that both owners played critical roles in the business. One was the “inside” partner and oversaw operations and finance. The other, the so-called “outside guy,” was the face of the company who had the large client relationships. Both positions were successfully transitioned to other senior executives from within the company over an 18-month period prior to opening the business for review by perspective buyers. Had they not had seasoned professionals already employed within their company, they would have gone through a recruiting process which would have added months to the transactional period.
During the actual sale, the executive team handled almost all of the direct interactions with the buyers. The owners were left to discuss the history of their business and watch their executive team in action. Ultimately the business was sold for a significant price for cash with very few contingencies. The buyer felt very comfortable with the executive team that was in place post sale and the business was well positioned for growth post closing.
Considering things from the buyer’s perspective can be challenging, especially if it is your first experience with collection agency M&A. Fortunately, Kaulkin Ginsberg can help you navigate those choppy waters. We have worked with small, mid-sized, and large privately-owned companies, Fortune 500 corporations, and financial investment firms on their collection agency M&A strategies for thirty years. Whether you’re seeking professional sell-side representation, assistance forming a partnership or joint venture, or a transaction assessment, Kaulkin Ginsberg will guide you through the process. For more information, or to schedule a confidential discussion of your business goals, contact us here or at firstname.lastname@example.org.