Industry Buyers

In some industries, selling to a financial or strategic buyer may not be an option, so your best bet may be to sell to a direct competitor. Or, your business may be so specialized that only a competitor would purchase it.

There is a fine line between industry buyers and strategic buyers. Strategic buyers realize synergies from acquiring your company, whereas industry buyers can easily replicate what your company has to offer and realize no synergy as a result of the acquisition.

Goals

Industry buyers are often seen as the buyer of last resort because they usually pay the lowest price. These buyers know the industry well and are not willing to pay for goodwill. The value of your company lies in what the buyer can’t easily recreate. 

For example, if you want $10 million for your business and the buyer could achieve the same level of revenue by investing $3 million into marketing, they will not buy your company if it costs more than $3 million.

Considerations

Selling to industry buyers carries an additional risk – a potential leak in confidentiality. Approaching direct competitors is risky, and the word will inevitably get out. Once it does, competitors are likely to use this against you and may attempt to poach your customers or employees. This can further undermine the value of your company and may also kill a deal you are currently negotiating.

Tips for Dealing With Industry Buyers

When dealing with industry buyers, I recommend the following:

• Hire a Professional: Having a professional negotiate on your behalf can help your bottom line. These buyers will often initially offer a low price. They will only increase their bid if they believe there may be competition to purchase your company. 
• Build Value: You want to build value in your company that can’t be easily replicated by a competitor. This includes intellectual property, such as patents, trademarks, trade secrets, recognized brand name, as well as long-term customer contracts.
• Maintain Confidentiality: Carefully track the release of your confidential materials. Serialize your confidential information memorandum (CIM) and other documents so a leak in confidentiality can be traced to its source.
• Stay Calm: Never show any signs of desperation. If you do, this will be used against you throughout the negotiations.

Key Points

• When selling your business, keep in mind who the most likely buyer will be. 
• Consider if it’s most likely you will be approached by an individual buyer, strategic buyer, financial buyer, or industry buyer, then market your business accordingly, based on its size and individual advantages. 
• Knowing who your buyer will most likely be will help you determine the steps you need to take to prepare your business for sale, as well as determine the best marketing strategy and overall sales approach to maximize your company’s value.