I was recently driving home after facilitating a buyer/seller meeting with strong synergy between the parties. The seller saw a younger version of themself in the buyer and felt the individual as their executive successor would continue the legacy of the business for quality, superior customer service, and excellent profitability. The buyer’s excitement about the business opportunity was apparent. If you put their mental, emotional, and physical attributes in the meeting to song, it would have been something similar to the attraction conveyed in the Chainsmokers and Coldplay’s, “Something Just Like This” (https://www.youtube.com/watch?v=4u6bWs-ZG0o).
The proceeding example begets the question, “What creates an environment where a buyer identifies a business acquisition where they conclude I want something just like this company”. My answer would be three overlapping elements: industry, geography, and price.
Many buyers approach IBA and indicate they are industry agnostic (https://www.divestopedia.com/definition/4977/industry-agnostic) about the company they want to acquire focusing exclusively on EBITDA and return on investment. I commonly share with these individuals a quote my father told me when I was contemplating career paths as a young man, “If you don’t want to get out of bed in the morning to do a job, you are in the wrong career.”. Universally, every buyer wants a profitable company with upside potential and limited downside risk. Accepting that given, it is important when acquiring a business to identify a company where the buyer’s knowledge, experience, and ability have a probability of enhancing the entity in the future. The one thing that cannot be sold in a business sale is the knowledge, experience, and ability of ownership in terms of executive management and leadership. The new owner will be better or worse than the seller in general and specific areas. All buyers should ask themselves do they want to learn about a company’s marketplace, influences, trends, competition, and innovations. If pursuit of knowledge in an industry is not desired, it is my strong recommendation that the business not be purchased. IBA is presently representing a well established business that services septic systems and rents portable toilets. The company has generated a quality life for ownership for multiple decades. They are proud of their achievements as entrepreneurs. The company presents a sound, business acquisition opportunity by most metrics, however if a person does not want to deal with biological waste at homes, weddings, and concerts on a regular basis, I would not encourage the purchase of this business no matter how profitable it is or the return on investment offered.
Many buyers can find attractive companies to acquire in multiple industries. The reality of business is that when you cut away the outer shell, the fundamentals of successfully running a company come down to quality practices for accounting, customer creation, human resources, and product/service provision. A buyer should keep an open mind and welcome opportunities to evaluate as potential acquisitions. IBA has sold 100’s of companies to people who never considered owning a business in a specific industry, but were very happy and achieved wonderful results when they did.
Unlike, industry where flexibility is generally possible, geography can be a very limiting element when seeking a business to acquire. Most people, by the time they are ready to acquire a business, are established in their lives. They made a house a home, have a spouse employed with a reasonable commute, children in school, and/or are part of a community. Relocation may be an option, but it is generally not a preference. There is little a business broker can do to overcome an objection to a company on its location. Traditionally, an acquired business will be located in close proximity to an area where the buyer wants to live.
The final element impacting finding the right business to purchase is the cold reality of life, price. It does not matter whether you are buying a car, home, or business every person has financial limits related to their acquisition ability. In the business brokerage world limits exist based on the availability of capital to support an acquisition. In the main street & middle markets, SBA loans have a $5 million cap, so transitioning beyond that threshold requires cash, investors, seller financing, or lenders willing to back an acquisition without a government guarantee. In a competitive marketplace, sellers almost always gravitate toward the buyer that offers the least risk and most cash. For example, a buyer that offers to inject 25% of the purchase price in cash and is able to acquire a business without seller financing will be preferred to a buyer who needs seller financing or seeks an earn-out component for a deal.
Nothing makes an IBA business broker happier than to facilitate a deal where the seller gets a fair market value and a buyer acquires a business they are excited to own & operate. IBA has been successfully facilitating transactions with values of six, seven, and eight figures since 1975. If you are considering the sale of a business in 2022, we would welcome the opportunity to provide an overview of our services. If you are looking to acquire a business this year, I encourage you to become part of our buyer database program, https://ibainc.com/buy-a-business/. IBA consistently has more quality inventory on the market and sells more businesses annually than anyone else in the Pacific Northwest. Many of our deals never appear in the public domain and are sold to buyer database program participants. We welcome the opportunity to facilitate “win-win” transactions employing best practices.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.