Choosing a buyer
How to Choose the Right Buyer to Protect Your Company’s Legacy
By Lee Smith · · 4 min read · Updated
Most entrepreneurs are focused on growth, and understandably so. But when it comes time to exit, a viable exit plan is just as critical as any growth plan. That plan takes on a heightened importance when selling to an external buyer.
In many cases the entrepreneur has spent years, even decades, building the business to the point where the identity of the business and the identity of the entrepreneur are intertwined. Selecting the wrong buyer can have grave consequences, and time-honoured legacies can be marred and dissolved. So how do you prevent this happening to your business?
1. Understand the buyer's business and priorities
The highest bidder is not necessarily the buyer who will work to preserve the business's legacy. By studying the buyer's business model and operations, you can evaluate what purpose acquiring your company would serve.
In many cases, buyers are looking to expand their access to new markets or products. In others, the buyer may be looking to strip out certain assets or, worse, remove a competitor from the market to gain pricing power.
From a legacy standpoint that is highly detrimental, because such a buyer will look to realise cost synergies by laying off your former workers, with all the damage to the brand that follows. Discussing what each buyer would actually do with the business, and understanding how it fits their long-term priorities, goes a long way to selecting the right one.
2. Succession planning
Buyers that do not have an established or identified management team ready to take over are probably buyers you want to stay away from if legacy is a major consideration.
Most business owners agree that a strong management team is critical to long-term success. If the buyer you are courting does not have a leadership team in place to pick up where you left off, the chances of them being a good fit are slim. Work instead with buyers who have conviction in your business, who can explain how it helps them achieve their own growth plans, and who are best placed to lead it from their end.
3. Buyer culture and brand
History is littered with poorly executed acquisitions which made financial sense but faltered because of differing cultures. The buyer will certainly do due diligence on your business. It is just as important that you do your due diligence on the buyer.
Understanding the culture they foster and the external brand they have in the community will tell you whether they are an acquirer who would strengthen your legacy or not. Stakeholder interviews, site visits, observation and media analysis all help.
In summary
Sell to a buyer whose priorities align with yours. The financial merits of a transaction tend to overshadow the other factors at play, but if the legacy of your business is important to you, choose a buyer, and advisers, who understand that and act on it.
Related reading: Legacy or liability? How to choose a buyer who will honour what you have built · Our approach: operators, not private equity
Questions this article answers
Why might the highest bidder be the wrong buyer?
A buyer paying the highest price is often planning to fund it through cost synergies: laying off your former staff, merging your brand into theirs or removing you as a competitor. If preserving your team and name matters, understand what each buyer intends to do with the business before you compare offers.