BBNY Has Three Main Buyer Types
Private Equity / Investment Groups
Private equity investors (also called financial sponsors or buy-out firms) invest in non-public companies and typically hold their investments with the intent of realizing a return within 3 to 7 years. Generally, economic returns are realized through an initial public offering, sale, merger or re capitalization. While venture capital firms tend to invest in earlier stage growth companies, private equity groups tend to focus on more mature businesses, often contributing both equity and debt (or some hybrid) to the transaction. In seeking potential acquisition candidates, Private equity firms tend to look for:
- Strong management team
- Ability to generate cash
- Significant growth potential
- Ability to create value
- Opportunity for a practical exit strategy
While private equity firms employ various strategies to create value in their investments (such as the consolidation of a fragmented industry), a common strategy is to acquire a "platform" company and grow the platform through further "add-on" acquisitions. Add-on acquisitions are typically smaller in size, but complementary to the platform investment. Ideally, the synergies of the combined entity create a more efficient whole, both operationally and financially.
Private equity groups typically use leverage (debt) to increase the return on the firm's invested capital. In normal times, private equity investors can safely work with higher leverages because they generally have greater access to capital than owner operators. The amount of leverage employed is normally determined by the target's ability to service the debt with cash generated through operations. Because cash flow is the basis for valuation, the ability to improve operations to generate increased cash flow will also yield a greater return on investment upon exit.
Private equity groups make money from both the cash flow of the acquired business and from the proceeds generated upon exiting the business. The exit provides the investor a mechanism to one-time the firm's equity. This is also referred to as "a liquidity event". The exit provides the financial sponsor with a finalization of the investment and an opportunity to distribute profits. In fact, a significant component of a private equity professional's compensation is based on their share of this profit distribution, called "carried interest", or just "carry".
Corporate / Strategic Buyers
Although most corporate buyers (often referred to as strategic buyers) are interested in purchasing 100% of businesses such as yours, some are interested in forming strategic alliances. This might come in the form of an equity investment initially and an agreement that at a future date allowing them to acquire full control of the company. Our BBNY can help you make contact with these buyers and negotiate a strategic alliance of this nature that would improve your chances of success.
In addition to the many corporate buyers, with which we we maintain contact, BBNY brings you the experience and "know-how" in identifying other corporate buyers who may be interested in acquiring your business. We operate in a way to execute confidential inquiries to corporate buyers without disclosing your company’s identity.
An auction process may have its merits, but we believe it does not always maintain the confidentiality and that targeted selection of highly qualified buyers is what most sellers like yourself desire. We would bring your business opportunity to well selected potential buyers, building emphasis on the unique nature of your company. This way we build the market for your business sale without over-shopping it to too many buyers, that in one way or another, could cause the value of your business to suffer. Only experienced business mergers and acquisitions experts like BBNY can accomplish this in an effective manner.
Individual Investors
Individual investors are typically high net worth investors sucxh as angle investors or individual buyers who may be corporate executives. The high net worth investor are usually seeking middle market businesses with high six figure earnings where management will more than likely remain after transition. On the other hand, the typical individual buyer is an entrepreneur, maybe a displaced executive with access to funds, who is basically buying a job with vision of creating wealth and growing a successful business to support their family. The individual buyer often replaces the existing owner, has limited access to funds for a down payment and seeks a business priced under $1 million.
