To prep for a sale, owners need to have a foundation built and progress underway to achieve reliable and sustainable growth. When a potential buyer approaches a target company for sale, their background and career experiences greatly impact how they view growth potential.
All Buyers have a vision for what a company can become under new ownership, and this likely differs from how the company founders view the company’s trajectory. Current ownership should be prepared to help buyers understand how the business can grow in the future and what levers unlock growth. If a buyer can clearly see how they can scale a target business, this directly relates to how much they are willing to spend to acquire the business. Buyers only will pay for growth potential that they can reasonably obtain once ownership transitions.
To hit a new gear for company growth, buyers will look at areas that can bring in additional revenue or optimize costs. This could include:
- Customer and supplier diversification – concentration, contract and payment terms, foreign vs. domestic, horizontal vs. vertical integration, etc.
- Products – niche vs. commodity, value added services, loss leader and margin profiles in segments, etc.
- Operations – Capital expenditure to scale up and out, digital transformation in sales, marketing, training, and operations, human resource development and retainment, etc.
A great framework to reference when looking to understand a company’s growth potential is Michael Porter’s seminal “Porter’s Five Forces.” Buyer’s will likely have a specialty in one of the five forces and a business thesis on how they will achieve growth success when they take over the reins.