Sellers of businesses are more or less the same: They're all looking for the best price they can get. Buyers are a little trickier to figure out.
Sellers of businesses are more or less the same: They're all looking for the best price they can get. Buyers are a little trickier to figure, because different buyers can see the same company in different ways. A retailer with modest revenue and few growth prospects may be dullsville to an angel investor. But for someone seeking a stable business and a steady, reliable income, that same retailer might be perfect. It's complicated, but in general business brokers find that buyers fall into one of four categories, based on appetite for risk, access to financing, and likely exit strategy. Here's how they break down.
Main Street Buyers
What they want: A business that is manageable and easy to run alone or with a spouse and one or two employees
Most likely acquisitions: Courier services; small retailers; car washes; insurance brokerages; dry cleaners; cafés
Revenue range: Up to $1 million, with $50,000 to $100,000 in owner's discretionary income, depending on location
Risk tolerance: Low
Profile: A Main Street buyer will focus almost solely on present and past earnings rather than growth potential. A seller may be asked to stay on as a consultant after the deal is complete to ensure the transition in ownership goes smoothly.
What they want: Low- or nontech service businesses, preferably with commercial clients and contract revenue
Most likely acquisitions: Management-consulting firms; delivery and logistics companies; service firms in businesses such as landscaping or cleaning; advertising and public relations firms; small manufacturers
Revenue range: Under $5 million, with owner's earnings of at least $100,000
Risk tolerance: Low to medium
Profile: The typical corporate refugee is looking to build on what he or she has done working for someone else and often will pay handsomely for that opportunity. Such buyers often have substantial retirement income, equity in their homes, and some savings. As a result, they seldom have difficulty drumming up financing.
What they want: Profitable companies with good management in place
Most likely acquisitions: Human resources and staffing firms; communication and computer-related services; copier-sale companies; security companies; multi-unit rental properties
Revenue range: Less than $10 million, with more than $100,000 in owner's income
Risk tolerance: Medium to high
Profile: As business owners themselves, serial buyers know what goes into building a successful company and often will pay a higher multiple for something they admire -- up to five times earnings. Many seek to assemble a portfolio of companies in different sectors. Others roll up several similar companies in the same industry. The key is that they want businesses that can run on their own.
What they want: Profitable companies that offer hot products or services and are poised to expand rapidly
Most likely acquisitions: Health care and long-term-care facilities; energy companies; schools and educational services; communications technology and media companies; packaged software makers
Revenue range: $10 million to $100 million, with earnings of more than $1 million
Risk tolerance: Medium to high
Profile: Financial buyers, often venture capitalists or angel investors, generally seek a big exit within about five years. That means they want businesses that have great ideas or are already successful. The idea is to infuse the business with capital and get it on the fast track. For the right opportunity, they will pay high multiples and in most cases ask the seller to stay on to help guide the transition.
DARREN DAHL is a contributing editor at Inc. Magazine, which he has written for since 2004. He also works as a collaborative writer and editor and has partnered with several high-profile authors. Dahl lives in Asheville, NC.