As a retiring business owner, you've reached an important crossroads in your entrepreneurial journey. You've likely already taken the crucial step of assessing the value of your business (which we discussed in a separate article here). Now, the next pressing question on your mind is, "Who do I sell to?" In this article, we aim to shed some light, at a high level, on potential buyer pools that you might consider and how we, at Firebird Capital, measure up.
Buyer Pools
Before we dive into the specifics of Firebird Capital, let's first explore the main buyer pools you might encounter during your business exit journey: Trade Buyers; Private Equity and Other Financial Institutions; and Management and Team
Trade Buyers
Trade buyers are businesses that operate in the same industry as yours or are looking to enter your industry. If maximizing the financial return on your investment is your primary concern, this might be an excellent option for you. Here's why:
Industry Understanding: Trade buyers inherently understand the opportunities and challenges of your industry. They can quickly grasp the value your business brings to the table.
Economies of Scale: Trade buyers can often achieve economies of scale by acquiring your business. This may involve removing duplicate roles, cross-selling their services to your customers, and vice versa. Consequently, they are often willing to pay a higher price than other buyer pools.
Shorter Handover: Trade buyers are generally more familiar with the industry, resulting in a shorter handover period, which can be advantageous if you want a swift transition.
However, it's worth noting that selling to trade buyers may come with downsides, such as potential redundancies within your existing team and a lower likelihood of them receiving share incentives compared to other buyer pools.
If you're considering this option, start by assessing your competitors, both locally and internationally, as well-funded competitors could be potential trade buyers.
Private Equity and Other Financial Institutions
This category encompasses a wide range of institutions with significant cash reserves used to acquire and grow small and medium-sized enterprises (SMEs). Some common examples include private equity firms (PE) and family offices:
Private Equity (PE): PE firms raise funds, often ranging from millions to billions, from multiple investors. They identify suitable SME targets, invest in them, support their growth, and ultimately sell them within a defined timeframe.
Family Offices: These represent families with substantial cash reserves and aims similar to PE firms. However, they tend to be single investors and have more flexibility in terms of exit timeframes.
While buyers in this pool may lack the industry-specific knowledge found in trade buyers, they excel in mergers and acquisitions, finance, and business growth.
Most importantly, they rely heavily on the management team to operate and grow the business, often resulting in key team members receiving shares going forward. This makes it an excellent choice if you're looking for a balance between maximizing the value of your business and taking care of your team's interests.
The best way to access these types of buyers is often through a business broker or corporate finance house.
Alternatively, as Firebird Capital falls within this category, get in touch with us directly here.
Management and Team
Many business owners have a sentimental attachment to their companies and want to pass the torch to the team that has played a pivotal role in building it. Two common ways to achieve this are through a Management Buy Out (MBO) or an Employee Ownership Trust (EOT):
Management Buy Out (MBO): In an MBO, the existing management team either takes on bank debt or secures financing from a PE firm or family office to purchase the business from the owner. This is a great option if key team members are motivated to drive the business forward and have the credibility to gain third-party support.
Employee Ownership Trust (EOT): The EOT is a government scheme aimed at encouraging business owners to sell their companies to employees in return for tax benefits. It's a suitable choice when there's no obvious buyer, and it allows the owner to retain up to 49% of the shares.
Now that we've covered some of the main buyer pools, let's take a closer look at Firebird Capital and how we compare.
Firebird Capital – How Does It Compare?
Firebird Capital falls into the category of family offices. What sets us apart from the rest?
Fair Valuations: At Firebird Capital, we believe in fair valuations that work for sellers, buyers, and the ongoing management team. We are so committed to this principle that we openly share our valuation approach here.
Clear Deal Structures: In many M&A transactions, deal structures can be complex and heavily favour the buyer. We believe in simplicity and clarity. As a result, we openly publish our key terms here.
Shared Success: We firmly believe in aligning interests. At Firebird, we allocate shares to key team members and provide further opportunities for career progression, ensuring that the team that helped build the business continues to benefit.
Proactive Support: Our team at Firebird Capital proactively drives growth through strategic planning, financial expertise, and operational experience. We're not just passive investors; we're active partners in your business's success.
Certified Scaling Up Coach: Our Director is a certified Scaling Up Business Coach with a proven track record of growing and exiting businesses. We bring valuable expertise to the table to help your business thrive.
No Debt: Firebird Capital uses existing cash reserves to acquire businesses and fund growth. This approach eliminates the risks and hassles associated with using bank debt, ensuring a smoother transition.
Speed: We understand the importance of efficiency. Firebird Capital can complete a transaction in under three months, minimizing disruption to the business and the management team.
In conclusion, as a retiring business owner, you have various buyer pool options to consider when selling your business. Each comes with its advantages and drawbacks, so it's essential to consider which approach is best for you and the business.
Firebird Capital, as a family office, offers a unique approach to business acquisitions that prioritize fairness, transparency, shared success, and proactive support. If these values resonate with you, we invite you to explore the possibility of partnering with us. Get in touch with us here.