Some small business owners are happy staying small, while others have aspirations of becoming much bigger and more recognized in their industry. One path to faster growth and recognition is to sell your company to a larger competitor or related corporation.
Jennifer Gehrt, founder and partner at Communiqué PR, said getting acquired by a larger brand can provide numerous benefits to small companies, as well as help them expand quickly by using their new parent company's resources.
"Often, when larger companies purchase small companies, awareness for the smaller companies' products and services increase," said Gehrt, who has assisted numerous companies position themselves for acquisitions and mergers. "There are also economies of scale that the smaller company can realize by merging with a large company, which can happen in areas such as recruiting, sales and marketing, or procurement."
Strategic corporate buyers are also often willing to pay more to acquire a smaller business than a traditional "financial" buyer, such as a private equity firm, would, said Peter Lehrman, founder and CEO of Axial, a platform that connects businesses with potential buyers, lenders and investors.
"Large corporate brands are able to justify paying a premium for acquired businesses based on [market opportunities] offered by the acquisition, while traditional financial buyers cannot," Lehrman said.
For serial entrepreneurs, selling a small business can even be an end goal in and of itself, said Gyawu Mahama, social media and marketing manager at small business insurer Hiscox. These entrepreneurs are motivated by the thrill of building up a business and then cashing out, he said.
No matter what your motivation, here's how to make your company more attractive to potential buyers, and how to successfully navigate an acquisition. [See Related Story: https://www.businessnewsdaily.com]
What buyers want
What qualities does a small company need in order to get potential buyers interested? Here are a few important things larger brands look for:
- Financial health. The single most important factor to a buyer looking to acquire a company is that business's financials, Lehrman said; financial reports must be free of inconsistencies and speak to the soundness of the company. Mahama agreed, noting that lower debt will make you more attractive to prospective buyers.
- A growing and satisfied customer base. Buyers want to know that the company they're purchasing will come with a loyal customer base. Mahama said a larger number of customers creates a more valuable sale proposition for your business. Lehrman added that future growth potential, plus evidence of a solid past, will appeal to buyers.
- A strong story. Gehrt said telling your company's story well and generating buzz about the business will result in the best valuation. A previous company Gehrt worked for was acquired by AOL, which paid an extra $50 million just because of how many people were talking about the company, she said.
Finding the right partner
Agreeing to an acquisition deal is like any other major business decision: You need to make sure it will be mutually beneficial to both parties.
Maui Wowi Hawaiian, a smoothie and coffee franchise, was acquired by Kahala Brands franchise restaurant company last year. Maui Wowi CEO Mike Weinberger said the deal was a perfect fit for both brands: His company wanted to advance its brand and provide greater support for franchisees, and Kahala wanted to strengthen its leadership and presence in the market Maui Wowi serves.
"That combination is very promising for a successful future of the brand as a whole," Weinberger said.
Even if you're not ready to sell right now, it's a good idea to start making connections with advisers and potential buyers in your industry, Lehrman said. Building an understanding of the diverse buyer landscape, as well as having good advice on your side, will make you a more educated and prepared seller, ready to make a decision when the time comes, he said.
However, Jon Lee, CEO and co-founder of customer relationship management software provider ProsperWorks, cautioned small business owners not to get too caught up in trying to get acquired. Founders sometimes spend a disproportionate amount of time thinking about an acquisition when they should be focused on building the most value for the company, he said.
"The true driver of an acquisition is the value another company sees in what you are building and the potential synergy between the two companies," Lee told Business News Daily. "Rather than trying to position your business for an acquisition, you should be developing your product, growing revenue and scaling your team with top talent. If you can continue building a company that offers the highest value to your end users, the acquisition offers will surely follow, and from more sources than one."
If and when you do receive an offer, Lee advised negotiating from a position of strength.
"Don't chase the acquisition — let them court you instead," he said. "If you've developed a strong foundation for your business with a proven track record, you can always continue developing your business even without the acquisition, and hold out for a better offer with the most favorable terms."
During the transition, the acquired company may find it hard to integrate with established cultures and management styles, Mahama, of Hiscox, said. Some companies can experience culture clash and talent dissolution during the transition period if these changes haven't been properly planned for, Axial's Lehrman added.
"Making culture part of the deal early on is essential for successful postsale integration," Lehrman said. "Especially when the acquired company is much smaller than the new parent company, it's easy for a culture that isn't well documented and well articulated to get ignored or swallowed up. Misaligned expectations can lead to resignations."
Communiqué PR's Gehrt noted that clear communication with your new and existing team members can help you overcome these types of obstacles.
"A big determinant of a successful acquisition is whether the teams fuse together, so having clear goals set in place early on will also aid with this process," Gehrt said. "Demonstrating that the acquisition is beneficial to everyone involved will help keep employees happy and motivated to continue doing the stellar work that secured the acquisition in the first place."