Selling your business is a huge decision, and a critical part of the process is understanding who might want to buy it. In the world of mergers and acquisitions (M&A), there are several different types of buyers, each with their own motivations, financial situations, and ways of making decisions. Knowing who these buyers are can help you navigate the sale process more smoothly and achieve a better outcome.
Here is a breakdown of the main types of buyers you might encounter:
- Individuals: These are often entrepreneurs or wealthy individuals looking to own and run a business directly. They can make decisions quickly, but they may have limited financial resources.
- Key Question to Ask: “Do they have the financial capacity and a clear vision for the future of my business?”
- Caution: It is important to verify their funding and experience in running a business.
- Is the buyer someone you can have a good relationship with, or would you constantly disagree?
- Example: Eclipse Systems, a manufacturer of fire-rated commercial door frames, was acquired by a married couple using an SBA loan with 20% down payment.
- Search Funds: These are typically young aspiring entrepreneurs with an MBA who are backed by investors and focused on buying a single business.
- Key Question to Ask: “Who are the investors backing this fund, and what is their investment timeline?” The searcher should provide letters of commitment. Often these are on the searcher’s website.
- Usually, the investors are seasoned, high net worth entrepreneurs who will be an advisory team for the searcher, helping him choose a good business, negotiate price and terms, and set up the buying entity.
- Caution: Make sure their financial backing aligns with the deal structure.
- Example: Martin Stein graduated from Harvard Business School with an MBA. After several years of consulting experience, he founded Blackford Capital in 2010 and was backed by the Harvard fund and a group of Harvard graduates who were seasoned, wealthy entrepreneurs. As of 2025, Blackford Capital has completed 19 acquisitions and has realized 12 of them, with 7 portfolio companies at the time of this writing.
- Independent Sponsors: These are experienced dealmakers or business operators who raise money from investors for each specific transaction.
- Key Question to Ask: “What is your history in securing funding for acquisitions?”
- “Will you be the operator of the business?”
- Caution: Uncertainty around funding can cause delays or even derail the deal.
- Example: Pappas Piping Service, Inc. was acquired by Bill Butler, a serial entrepreneur who owned a regional plumbing supply company and used middle market funding sources to finance the acquisition. This is an example of vertical integration by a strategic acquirer who is a serial entrepreneur.
- Private Equity Syndicators: These are private equity managers who have relationships with many investors who pool their money to buy companies.
- Key Question to Ask: “Who is the main decision-maker, and what is the structure of the investment?”
- Caution: Be aware that decision-making can be slow and complex with these groups.
- Example: Salt Creek Capital. One of the most successful PE firms, Salt Creek, was founded by several experienced M&A advisors in the early 2000’s and completed over 50 acquisitions by 2025. Combined revenues of their portfolio companies are in the range of $1 billion. Each acquisition was funded by a syndication of investors, mostly institutional, for the equity, and non-bank lenders for debt.
- Private Equity Funds: These are established firms with significant capital that focus on generating returns for their investors.
- Key Question to Ask: “How does my business fit your investment specifications?”
- Caution: They will require thorough due diligence and want to see clear potential for growth.
- Typically invest in a platform (larger) business then buy several smaller businesses to merge with the platform. Average term of ownership is 5 to 7 years. Initially, most cash flow is used to pay off acquisition debt, typically, in the first 5 years.
- Example: Alpine Investors – have committed funds, have invested in 850 businesses and have $18 billion assets under management.
- Family Offices: These are private wealth management firms that invest on behalf of wealthy families, often with a focus on preserving wealth for the long term.
- Key Question to Ask: “What are the family’s investment goals, and how involved do they plan to be in running the business?”
- Caution: Family considerations can sometimes influence their decisions.
- Example: Trim Tech Construction, a distributor and installer of commercial doors, frames, and hardware, was acquired by a family office. One family member was an experienced operator who became CEO. The equity was invested by extended family members and debt funding used a combination of bank financing and seller financing.
- Public Companies: These are strategic buyers that are looking to grow their business or create synergies through acquisitions.
- Key Question to Ask: “How does acquiring my business fit into your overall long-term strategy?”
- Public companies typically buy businesses that are in the same industry as the public company’s core business.
- Caution: The sale process can be lengthy due to extensive due diligence and regulatory approvals.
- Strategic buyers, especially public companies, can typically pay higher prices and pay mostly cash because they own assets that will make the acquired business more profitable than a financial acquirer can.
- Example: RPM International (NYSE:RPM), acquired two manufacturing plants making specialty grouts from its owner, Bomat Holding, a manufacturer and distributor of building materials. This was a strategic acquisition for RPM because the manufacturing plants in Phoenix and Houston enabled RPM to serve those large, growing municipal service areas while reducing the costs of delivering such heavy materials from far away.
Why Does Choosing the Right Buyer Matter to You?
Choosing the right buyer is essential for a successful sale. It increases the likelihood that the deal will actually close, and it helps you get the best possible value for your business. It typically minimizes the risk of trouble after closing if the buyer is undercapitalized or lacks the necessary management skills to operate successfully. By understanding the different types of buyers and what motivates them, you will be better prepared to navigate the complexities of selling your business.
In a perfect world, you sell your business to a strategic acquirer that is publicly traded. You get top dollar and are paid all cash. Unfortunately, there may not be a strategic acquirer for every business, or the business may have significant risks that prevent its sale to any buyer except the most aggressive risk takers. That buyer may not be willing to risk much of his own money and may require seller financing.
Best practice is to work with a merger and acquisition advisor to prepare your business for sale by mitigating manageable risks, doing a pre-sale audit of the financial records, and keeping sales & earnings steadily growing. The M&A advisor should have the resources and connections to present your business to the strategic acquirers and private equity funds whose acquisition specifications match your business’s characteristics.