The inverse to why sellers sell a business is why buyers buy. Often a seller may only sell one business in a lifetime. However, buyers often buy several companies during their lifetime as they assemble pieces to help another business grow. Many buyers purchase a business to avoid the risk associated with start-ups and are principally financial buyers. However, many times the buyer is a strategic buyer who is looking for a business to shore up a need in another business.
For example, I purchased the assets of a complementary documentation business in Milwaukee, WI to diversify my client base and expand my geography. My client base was too heavily concentrated in the computer and telco sectors. In fact, my client base was dominated by only two very large companies. The acquisition allowed me to diversify my overall concentration, making my bankers happy and my business much more attractive to potential buyers. Often buyers buy a business because they see growth potential that the seller does not see or does not have access to. Other times the buyer is looking for a strategic fit or to create line extensions.
For example, DuraLog had a nice business selling fireplace logs during the winter, but sales in the summer were nonexistent. Kingsford had a nice business selling charcoal briquettes during the summer, but winters were a brutal time for them. The merger of DuraLog and Kingsford allowed each to fix its seasonal fluctuations. Sometimes, the buyer is looking to increase utilization of its fixed assets such as a manufacturing plant that has extra capacity. Many times, the buyer is buying assets that don’t appear on a balance sheet. For instance, these assets might include the seller’s customer base, vendor base, employees, patents, or industry knowledge.
After my business was acquired, I stayed on to help them build up and grow their business until it too was acquired by another company. The reason for the acquisition was that the company that originally acquired me employed half of all the XML engineers on the planet at the time and the company just wanted the XML engineers.
Why would potential buyers look at buying your business?
