What Are Buyers Really Looking For in M&A?

What is the best way to position your company to be sold? I’ve often heard this question from owners and executives who aren’t quite ready to exit their business but who may be thinking about its future over the next five to 10 years. If you’re in this position, you’re wise to begin thinking about the process early on – planning is essential in preparing a business for sale. Spending time on preparation will increase your likelihood of selling to the right buyer.

In my experience working on the buy-side, I would say the most important thing buyers are looking for is profitable growth. They will want to know that they can take what you have built and continue to grow it; otherwise the only other synergy would be cost savings.  Therefore they want a business that does something unique that other companies, start-ups or technology can’t easily displace.

Every business is different, but here are some areas that buyers tend to focus on when looking at an acquisition:

  1. Customers — Ideally, you have lots of them because customer concentration creates vulnerabilities.  You also need a system in place to bring on new business that doesn’t require your hands-on engagement, preferably with multi-year contracts.
  2. Audited or Reviewed Financials —  Potential buyers will have a lot more confidence in your business and the numbers if you have 3 years of audited or reviewed financial statements.  It goes without saying that a high-margin business is always desirable.  Tax returns will be asked for so make sure to file them — truthfully!
  3. People – Who is instrumental in the success of your company? What is your balance of employees and 1099 contractors?  These are increasingly important factors for a buyer. You’ll need a robust HR system for recruiting, hiring, training and retaining? Buyers also look at the quality of management. Do you have a team in place to run the business for the new owner, without you? A company that’s over-dependent on one individual has lower value as an acquisition, so make sure there are others ready to take over the operation when you leave.

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