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. You can get in touch with us to arrange a confidential, no obligation, meeting… or for a more general introduction why not attend one of our free webinars?
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…