5 Strategic Reasons Your Business is Worth More in Someone Else’s Hands
It can be a bitter pill to swallow for an entrepreneur who has worked hard to build a business they are rightly very proud of, but let’s be honest – if your business isn’t worth more in the hands of a new owner, why sell it? You will only achieve a premium price for your business if the new owner believes they can do more with it than you have achieved.
The sweetener for any owner looking to sell, of course, is that standard methods of valuation are soon overruled by a strong strategic motive for acquisition. Here are 5 recent examples of strategic motives for acquisition – do any of them sound like your business?
1. Filling in the gaps
The recent explosion in cook-at-home meal delivery services like Gusto and Hello Fresh, fuelled by the pandemic, has left traditional food companies with an obvious and gaping hole in their portfolios. This was clearly a strong motive for Nestlé who announced in November 2020 that they had acquired a 16% stake in Freshly, a US-based meal delivery business.
The deal values Freshly at $950m – just over 2.2x turnover. But this valuation was not simply about financials, in the words of Nestlé USA Chairman and CEO Steve Presley “adding them to the portfolio accelerates our ability to capitalize on the new realities in the U.S. food market and further positions Nestlé to win in the future.”
2. Moving with the times
The complex world of technology and computing doesn’t stand still, and no-one understands that better than chip-set manufacturer AMD having grown over the years to provide a credible and, arguably, better alternative to the market originator Intel.
They know they need to stay ahead of the game, a motive which has led them to acquire Xilinx – an innovative designer and manufacturer in the same space. A statement from the companies says the acquisition will allow them to “capitalize on opportunities spanning some of the industry’s most important growth segments, including data centres, gaming, PCs, communications, automotive, industrial, aerospace and defence.”
3. Brand power
One thing SMEs regularly underestimate is the value of their brand and reputation. You might not have the reach to be a global household name, but that doesn’t mean that companies won’t be interested in the meaning your name carries among your clients and in your local area.
EG Group (who also acquired Asda in October 2020) acquired fast-food chain LEON in April 2021 for £100m, despite being loss-making and having its growth plans seriously stunted by the pandemic. So why the valuation? Mohsin Issa and Zuber Issa of EG Group said the deal offered a “fantastic opportunity” to purchase a “brand we have long admired”.
4. Economics of scale
Amazon is everywhere and is one of those fortunate businesses to have been in the right place at the right time during this pandemic. But what can other businesses do when faced with a sprawling giant with the seemingly un-touchable might of a business like Amazon. One way is to acquire scale…
The acquisition of publisher, Simon & Schuster by Penguin Random House is an attempt to combat scale, with scale. The deal, expected to go through in mid-2021, will make Penguin Random House the biggest book publisher in the U.S., responsible for an estimated 1/3 of all books published in the territory. Few of us will ever be able to challenge this in terms of scale, but the principle applies even when scaled down to the SME level. Could someone gain significant benefits of scale from acquiring your business?
5. Upskilling
One of the limiting factors to growth commonly experienced by companies is a need to build experience, expertise, and skills into the business. This can be done through development of personnel and recruitment, but it is a slow process. Faster by a long way is to acquire a company that has already built the experience, expertise, and skills you need.
The acquisition of Waste Source by Reconomy in October 2020 was a classic example of this. Reconomy Chief Executive, Paul Cox said, “Waste Source will bring even more expertise, capability and experience into the group as part of that strategy, and we look forward to working with the team.”
If you think your business could be worth more in the hands of a strategic acquirer, or you want to explore your options, we would love to talk to you. As we said in a previous blog, who buys your business matters immensely, so it’s a process that must be skilfully driven. Get in touch with us to arrange a confidential, no obligation call.
Similar Insights
FAQs – Selling Your Company
How do I sell my business in the UK?
Selling a business in the UK typically involves preparing financial information, obtaining a valuation, identifying suitable buyers and negotiating the terms of a sale. Most owners work with an M&A adviser to manage the process confidentially, approach qualified buyers and maximise the value achieved.
At Entrepreneurs Hub, we talk about five key areas that make the difference between success and failure when selling your business. Read more…
What is my business worth?
A business is typically valued by applying a multiple to its sustainable profit, often EBITDA or adjusted net profit. The appropriate multiple depends on factors including growth, recurring revenue, customer concentration, management strength, owner dependency, market conditions and buyer demand.
Determining what your business is worth involves more than applying a simple formula. Use our Business Valuation Calculator to obtain an initial valuation range, or read our simple business valuation guide to understand the factors buyers consider.
How long does it take to sell a business?
Selling a business in the UK typically takes around 12 to 18 months from initial preparation to completion, although some transactions may be quicker or take longer. The timeline depends on business readiness, buyer demand, deal complexity, due diligence and how quickly the legal terms can be agreed.
Preparing accurate financial information and organising key documents in advance can help reduce avoidable delays. Read our complete business sale timeline to understand what happens at each stage.
When is the best time to sell a business?
The best time to sell a business is usually when it is performing strongly, its future growth is clear and you are not under pressure to complete a sale. Buyers are generally more attracted to businesses with rising or stable profits, reliable financial information and credible opportunities for further growth.
Business owners are often in a stronger position when:
- Revenue and profits are growing or consistently strong
- Financial records are accurate and up to date
- Future growth opportunities can be clearly demonstrated
- The business is not overly dependent on the owner
- There is a capable management team in place
- The owner has started preparing well in advance
Market conditions can also affect buyer appetite and valuation. Factors such as sector growth, access to finance and competition between buyers may support stronger deal activity, but preparation and business performance are usually more important than trying to identify a perfect month to sell.
Ultimately, the best time to sell is when both you and the business are ready, and the company can demonstrate sustainable performance and future value to potential buyers.
Use our Exit Readiness Tool to assess how prepared your business is, or read our guide on when to sell your business for further guidance.
Do I need an adviser to sell my business?
You are not legally required to use an adviser to sell your business, but many owners appoint an experienced M&A adviser to help manage the process. An adviser can prepare the business for sale, identify and approach suitable buyers confidentially, coordinate negotiations and support the transaction through due diligence.
The right adviser can also help create competitive tension, protect your time and reduce the risk of avoidable mistakes. Read our guide to choosing the right business sale adviser to understand the different types of support available.
How do I prepare my business for sale?
Preparing a business for sale involves strengthening its financial performance, reducing risk and making sure it can operate successfully without heavy reliance on the owner. Buyers will also expect accurate financial records, clear contracts, organised documentation and evidence of future growth.
Preparation should ideally begin well before approaching the market, giving you time to address weaknesses that could affect value or delay the transaction. Use our Exit Readiness Tool to assess how prepared your business currently is.
How is confidentiality protected during a sale?
Confidentiality is protected through controlled information sharing, anonymised buyer approaches and non-disclosure agreements. Potential buyers usually receive limited information at the start of the process and must sign an NDA before commercially sensitive details are released.
Prospective buyers should be assessed before receiving further information, with documents shared gradually according to their level of interest and credibility. A well-managed process also allows the business owner to retain oversight of who is approached and what information is disclosed.
What documents do I need to sell my business?
The documents needed to sell a business commonly include financial accounts, management information, forecasts, customer and supplier contracts, employment records, tax information and evidence of intellectual property ownership.
Buyers may also request details of property, insurance, legal disputes, regulatory matters and company ownership. Organising this information before due diligence begins can reduce delays and help maintain buyer confidence. Our Business Sale Due Diligence Checklist explains the main information buyers are likely to request.
What’s the quickest way to sell a company?
Selling a business quickly is possible, but speed shouldn’t come at the expense of value or deal security Read more…
What’s the best way to sell a business online?
Yes, you absolutely can sell a business online. Many platforms specialise in connecting business sellers with buyers. Read more…
How can I increase the value of my business before selling?
You may be able to increase the value of your business by improving sustainable profits, developing recurring revenue and reducing reliance on individual customers or the owner. Buyers also value capable management teams, reliable financial reporting, scalable operations and clear opportunities for future growth.
The earlier you identify the factors affecting value, the more time you have to make meaningful improvements. Use our Business Valuation Calculator for an initial indication of value and our Exit Readiness Tool to identify areas that may need attention.