No matter the state of the economy, buyers will always pursue what they perceive as a quality seller. Obviously, there are a plethora of buyer types, such as those that:
- Never vary from their stated mission or platforms.
- Gravitate to the industry “Flavor of the month.”
- Combine ingrained platforms with flexibility to expand the portfolio or create new platforms.
- Pursue any deal that meets their location, revenue, and EBITDA targets.
- Focus on minority purchases.
- Emphasize investments of debt versus equity, or a combination of each.
- Only consider part cash and earnouts.
With a multitude buyer types, how is a seller expected to find the best buyer? Simple answer: hire the investment bank that has the buyer relationships and will negotiate the deal terms that dovetail into an optimal outcome.
Key issues for sellers to be considered a quality candidate are the following:
- Depth and experience of management team and its willingness to remain with the company post-transaction.
- Consistent, accurate, and understandable financial statements. The quality of earnings (Q of E) analysis by the buyer reflects the same.
- Lack of significant customer concentration and independence from single key-employee relationships.
- Intellectual property that is easily understood and provides real marketplace advantages vis-à-vis competitors.
- Adjusted EBITDA calculation is detailed and supportable.
- Any potential negatives, such as profit margin erosion, is identified and explained at initial stages of the selling process.
- Growth prospects are justified and profitable.
- Effective procedures and systems allow for dashboard overview and analytics.
- Profit margins for each product or service are well-known and above industry standards.
Quality sellers continually focus on improving the above value drivers.