When you are preparing to sell your beauty business, it is important you understand that there are different types of buyer who will all be motivated by different business priorities. Understanding exactly what opportunity your beauty business could present to a buyer will help you better understand and plan your exit.
Here is a look at the five most common types of business buyers and their typical drivers:
- Trade Buyer
A trade buyer is simply an established business looking to grow by acquisition. Many trade buyers can be considered a strategic buyer as they are seeking a business to enhance their market position, speed up growth and/or to build new revenue streams while complementing existing operations. The motivation for a trade buyer could include absorbing competition, adding a superior product or service, adding a new business territory or region, entry into a new niche market or just building critical business mass. Out of all buyer types, the strategic buyer generally has the financial means and motivation to put the best deal on the table for the seller. This is often because they believe they can secure a greater business and market opportunity from buying your business; they are likely to be willing to pay a premium to gain the synergies and market advantage.
- Private Equity
Private Equity firms are financial institutions that have raised or have access to capital from investors and banks. Private Equity are particularly interested in businesses that offer fast growth, scalability and the bigger the opportunity the better. A private equity buyer will be looking for a strong team with proven leaders and experienced management. The business will need robust systems, growing financials and the existing team are likely to be expected to remain involved for some time. Essentially, they are “the money” and will be prepared to invest heavily helping you and your existing team to build the business to the next level. Private Equity generally look to exit their investment via a trade sale or IPO a few years down the line.
- Management (MBO)
A Management Buy-Out (MBO) is when an existing management team buys the business from the founder. For owners, this option can provide peace of mind in a number of areas, including deal confidentiality, a quick and smooth transaction as the management team already know the business, its culture, customers, systems and processes. However, it is likely the management will have to raise the cash to purchase the business. This may involve the management relying on borrowed funds from third parties and providing Personal Guarantees and/or other forms of legal security for the lenders. Often there can be shortfalls with the funding available and the price agreed – in this situation, the seller may look to defer/ delay part of the sale consideration for a period of time to facilitate the completion of the sale. Sometimes the MBO team can secure the financial support from Private Equity which can become a win, win, win deal for all three parties.
- Private Investor
A private investor has similar motivations to the private equity buyer, but on a much smaller scale with little of the same benefits. This includes generally limited resources, both financially and management experience and breadth. This type of buyer could be considered a financial buyer with motivations to acquire smaller, affordable businesses across a wide spectrum of business sectors where they believe the business has potential to grow and increase profits. Private investors are likely to want to invest or acquire your business with you remaining and continuing to run the business and a full business exit to a trade buyer will probably be planned for some years in the future. A word of caution, if the investor has no relevant sector experience and is only providing funding for a share equity or offers to acquire your business on a largely ‘earn-out’ and performance basis, you should proceed with great caution. Explore your other options and never rush into a deal; there is generally a better deal out there if you care to look for it!
There is the option of selling your beauty business to a family member, who may or may not have worked in the business. If the family member has worked in the business then this is likely to be a smooth transition for yourself, as the family member will know the company’s culture, customers and processes. Also, there is a lower risk for the owner as the shares might stay in the family. However, the challenge comes if the family member does not have the necessary funding or experience to make the deal work, you may choose to offer a deferred payment deal but you will risk losing money if the business does not perform well…
No matter what type of business buyer you have in mind, it is important that you seek the professional guidance of a trusted business sale expert to sell your beauty business. At BuyMySalon we can help you navigate through each stage of the sale process to a successful completion, contact us here.