Why it can be hard to find the right buyer
If your business makes between about $1.5 million and $5 million in profit a year, you are in an awkward middle. It is often beyond what most individuals can take on, but not large enough for bigger buyers, who tend to focus their time on bigger deals because the work involved is not much different. So there are fewer buyers than sellers expect. Knowing who they are helps you choose, rather than take whoever turns up.
The six kinds of buyer
1. Your staff or managers
- What they pay
- Often less than an outside buyer, because they have less money to work with.
- How fast
- Slow if a bank loan is involved.
- How you get paid
- Often partly by you lending them the money and being paid back over years (vendor finance).
- Your people and name
- Very likely kept.
- Who runs it day to day
- Someone you already know, now as an owner.
- Will they sell again
- Rarely.
2. A competitor or bigger business
- What they pay
- Can be the highest, because they save costs by combining.
- How fast
- Varies.
- How you get paid
- Cash, sometimes with part paid later.
- Your people and name
- At risk. Combining usually means doubled-up roles go, and your name may disappear into theirs.
- Who runs it day to day
- Usually their own managers.
- Will they sell again
- The business may stop existing as its own thing.
3. An individual buyer
- What they pay
- Limited by what the bank will lend them.
- How fast
- Often the slowest, because of bank finance.
- How you get paid
- Often asks for vendor finance, or for part of the price to depend on future results (an earn-out). That part then depends on how they run it after you leave.
- Your people and name
- Usually kept, but they are learning on the job.
- Who runs it day to day
- The buyer, sometimes running a business like yours for the first time.
- Will they sell again
- Possibly.
4. A private equity fund
- What they pay
- Often a full price, with part of it paid later or rolled into the new company.
- How fast
- Quick and well organised.
- How you get paid
- Cash plus deferred parts. Any part rolled into the new company is usually only paid out when the fund sells.
- Your people and name
- Usually kept at first. The fund needs growth, so costs and structure are often changed.
- Who runs it day to day
- A manager the fund backs, sometimes brought in from outside, reporting to the fund.
- Will they sell again
- Yes, typically within about four to seven years. That is how a fund works.
5. A search fund
- What it is
- A person backed by investors who is looking for one business to buy and run.
- How you get paid
- Funded by investors and debt, sometimes with part paid later.
- Your people and name
- Usually kept. The searcher becomes the new boss.
- Who runs it day to day
- The searcher, often running a business for the first time, with investors behind them.
- Will they sell again
- Commonly, after some years.
6. A long-term owner
- What they pay
- Fair market value.
- How fast
- Depends on the owner. Ask how the purchase is funded.
- How you get paid
- Often mostly cash at settlement. Ask.
- Your people and name
- Usually kept. For many owners, that's the main reason to choose one.
- Who runs it day to day
- Depends on the owner. Ask who, and how they'll be supported.
- Will they sell again
- No. They buy to keep.
These are general patterns. Every buyer is different, so ask them directly.
Six questions to ask any buyer
- What will you do with my people in the first year?
- Will you keep the name?
- Who will run it day to day once I step back, and what role would you like me to play?
- How much of the price is paid in cash at settlement? (More on earn-outs and vendor finance.)
- How are you funding the purchase, and is that funding in place?
- How long do you plan to own it, and do you plan to sell it again?
The answers tell you more than the headline price. Ask every buyer the same six, us included, and compare.
Where we fit
PPR Capital is a long-term owner. We buy Australian and New Zealand businesses with $1.5 million to $5 million in profit a year, from owners ready to step back, and we keep them. Not to flip, not to resell.
The business keeps running as it should, with the same people and the same customers. We pay fair market value, and we pay cash at settlement wherever we can. We avoid complex earn-outs and deferred payments. Within two weeks of our first conversation, you'll have our offer in writing, with a clear price. Owners pay us nothing for that: the first conversation and the written offer are free. You can see how selling to us works.
We are not right for every business. We usually look for 10 or more years in business, a profit margin of 15 per cent or more, and customers who come back year on year. If we're not the right fit, I'll point you in the right direction.
What it looked like at CMR
At 74, Peter Bourke wanted someone who would keep CMR Recycling in Mackay as it is, with the same people. That is why he chose Nikita. Today his son Ronnie runs CMR as general manager, and Peter still drops in most weeks for a cuppa with the team.
She's coming with the view that if it's not broken, we don't fix it.