5 Strategic Ways to Sell Your Company
In February 2014, Facebook has acquired Internet messaging service WhatsApp for £11.4 billion. It represented the largest-ever acquisition of an Internet company in history.
WhatsApp is a pearl for sure. The messaging service allows users to avoid text-messaging charges by moving texts across the Internet instead of the mobile phone carrier networks. This can save people who travel, or who live in emerging markets, hundreds of pounds a year, which is why WhatsApp is adding one million new users per day.
At the time of the acquisition, WhatsApp had acquired some 450 million users. Their business model is to charge a subscription of £.6 per year after their first full year of service. Even if all 450 million WhatsApp users were already paying, that is still not much more than a quarter of a billion in turnover. Why would Facebook acquire WhatsApp for a number that is somewhere north of 40 times turnover?
Nobody knows for sure what is in Mark Zuckerberg’s head, but we can only assume that at least part of the opportunity Facebook sees is the opportunity to sell more Facebook ads because of the information they glean from WhatsApp users. Global advertising giant Publicis estimates 2013 online advertising spending in the US alone to be around £300 billion. Presumably Facebook believes they can get a larger chunk of the global online ad buy because they know more about its users by owning WhatsApp.
And therein lies the definition of a strategic acquisition. Most acquisitions run a predictable pattern of industry norms, but a strategic one can pay a significant premium for your business because they are looking at your business for what it is worth in their hands. Rather than forecasting out your future profits and estimating what that cash is worth in today’s dollars, a strategic is calculating the economic benefit of grafting your business onto theirs.
There can be many strategic reasons why a big company might want to buy yours. Here are a few to consider:
- To control their supply chain
In 2011, Starbucks announced it had acquired Evolution Fresh, one of their providers of juice drinks, for £18 million. Now Starbucks is no longer beholden to one of its suppliers.
- To give their sales people something else in their briefcase
Also in 2011, AOL announced the acquisition of The Huffington Post for £189 million, even though HuffPo had just turned its first modest profit on paper. AOL wanted to give its advertising sales people more inventory to sell and HuffPo had 26 million unique visitors a month.
- To make their cash cow product look sexier
Microsoft bought Skype for 5.1 billion pounds, even though Skype was losing money. The good folks in Redmond must have assumed they could sell more Windows, Office and Xbox by integrating Skype into everything they already sell.
- To enter a new geographic market
Herman Miller paid £30 million to acquire China’s POSH Office Systems in order to get a beachhead into the world’s fastest growing market for office furniture.
- To get a hold of your employees
Facebook reportedly acquired Internet start-up Hot Potato for £.6 million, largely to get hold of the talented developers working at the company.
Most acquisitions are done for rational reasons where an acquirer agrees to pay today for the rights to your future stream of cash. You may, however, be able to get a significant premium for your company if you can figure out how much it is worth in someone else’s hands.
Whatever the reason for a buyers interest in your business, we know that the motivation to pay a premium and the speed of the deal completing will be significantly impacted by how prepared your business is for sale. Always be ready for sale, as statistics have shown that companies that are prepared for sale received offers that were 70% higher than those who were less prepared.
If you would like to talk further on how to prepare your business for exit, feel free to contact the Entrepreneurs Hub on 01256 799750 or email info@entrepreneurshub.co.uk.
Similar Insights
FAQs – Selling your company
How do I sell my business?
At Entrepreneurs Hub, we talk about five key areas that make the difference between success and failure when selling your business. Read more…
How much can I sell my business for?
Determining your business’s value is more than just calculating a number it’s complex with key factors, that said the basic equation is actually quite simple. Read more…
How long does it take to sell my business?
The timeline varies depending on the complexity of the deal and how ready the business is for sale. On average, the process takes around twelve months – sometimes less, sometimes more.
While preparing your business for sale, Entrepreneurs Hub conducts in-depth research to identify potential acquirers. You’ll have the opportunity to review and approve this list before we make any approaches. Once the business is fully prepared – often the most time-consuming step, we begin marketing it. Typically, you’ll start seeing initial interest within a few months, with follow-up meetings happening shortly after.
As these meetings progress – coordinated and facilitated by Entrepreneurs Hub, you’ll begin receiving initial offers. At this stage, we’ll help you assess the strategic fit between your business and potential buyers. When you decide to move forward with an offer, an exclusivity period begins, during which the acquirer conducts Due Diligence (DD).
The DD phase typically lasts two to three months, depending on the complexity of your business. Once complete, the sale is finalised, and you’ve successfully sold your company.
How do I sell my business quickly?
Selling a business quickly is possible, but speed shouldn’t come at the expense of value or deal security Read more…
When is the best time to sell?
Selling your business is a major milestone, and the start of an exciting new chapter, whether that means new ventures or a well-earned retirement.
In our experience, the best time to sell is when you don’t need to – when your business is performing well – not necessarily tied to the calendar. That said, timing can still play a role.
Timing the Market
Strong economic conditions, sector growth, and buyer confidence boost valuations. Don’t wait for a “perfect” market – a well-prepared, well-performing business sells in any climate.
Plan Ahead (12–18 Months)
The best outcomes come from early planning: clean financials, solid forecasting and growth potential.
Spring & Autumn Are Active Periods
The M&A market is typically busier in spring and autumn while summer and winter tend to be slower due to holidays and year-end distractions. However, the unpredictability of deals and negotiations makes this hard to target. We do deals all throughout the year – the key is to work with someone who can keep driving the deal forward whenever it happens.
Financial Year- End
Selling your business well is a long process and aiming for your financial year-end milestone is a virtually impossible task. But it is worth bearing your financial year in mind as buyers will want to review the most up-to-date accounts available.
The best time to sell is when your business is ready, and you are too. With the right preparation and positioning the right timing follows naturally.
Can I sell my business online?
Yes, you absolutely can sell a business online. Many platforms specialise in connecting business sellers with buyers. Read more…