Buyers of small business are most likely replacing lost jobs or searching for a happier alternative to corporate life. Buyers of mid-sized and large operations are, typically, private investment companies seeking businesses to build and eventually sell for a profit. This is the broadest possible look at the types of buyers out there.
- Individual Buyer: This is typically an individual who will purchase a business and be directly involved with the day-to-day management of the company. Many of them have come out of corporate America and are first-time buyers. Others are buyers who have owned a business in the past and are looking to once again become their 'own boss'. They generally will attempt to match the type of background or experience that they have with a given business opportunity. The individual buyer usually seeks a business that is financially healthy that will pay them a reasonable salary and any debt service required to purchase the business. Their financing sources are generally SBA loans, owner financing or loans from family members. They very rarely will pay all cash for a business. These buyers will usually limit themselves to transactions involving less than $1 million, cash.
- Strategic Buyer: This buyer is almost always a company, having its goal entering new market share, gaining new technology, or eliminating some element of competition. In essence, it is part of this buyer's strategy (hence the name) to acquire other businesses as part of a long-term plan. Strategic buyers can be either in the same business as the company under consideration, or a competitor. Strategic buyers will be looking chiefly at businesses with sales over $20 million, with a proprietary product and/or unique market share, and effective management in place and willing to remain.
- Synergistic Buyer: The synergistic category of a buyer is usually a company looking to grow by acquiring products or services of a complementary nature. The joining of the two companies will produce more or be worth more than just the sum of their parts. They now have the opportunity to sell the existing customer base additional products or services.
- Industry Buyer: This type is often a competitor or a highly similar operation. This buyer already knows the industry well and, therefore, does not generally pay for the expertise and knowledge of the seller. The industry buyer is interested mainly in combining manufacturing facilities, consolidating overhead, and utilizing the combined sales forces, expanding their operation geographically. These buyers will pay for assets but in most cases, they will not pay for goodwill, covenants not to compete, or seller consulting agreements.
- Financial Buyer: Financial buyers are influenced by a demonstrated return on investment, coupled with their ability to get financing on as large a portion of the purchase price as possible. Working on the theory that debt is the lowest cost of capital, these buyers purchase businesses with the sole purpose of making the maximum amount of money with the least amount of their capital invested.