The 5 Types of Buyers for a Business

This was originally a post I wrote midstreet.com. It should be valuable for anyone interested in business to understand — whether you own a company or you aspire to.

  1. What to expect when selling to each buyer
  2. Which buyer is right for a business owner

What are the 5 Types of Buyers for a Business?

  1. Individual: An individual using his or her own money and likely an SBA Standard 7(a) loan.
  2. Strategic: A business that sees value in combining its operations with the target business. Likely a competitor or supplier.
  3. Private Equity: Investment vehicles that raise money to invest in companies and hold them for 5–7 years before selling them again.
  4. Family Office: A company that invests on behalf of a wealthy family.
  5. Employees: An Employee-Stock Ownership Plan (ESOP) can be used to gradually transfer a business’s equity to its employees.

Individual

At MidStreet, about 75% of buyers who purchase businesses are individuals.

  1. High-net-worth individuals (HNWI), those with assets greater than $1 million
  2. Individuals who’ve sold a business in the past and would like to purchase another company

Strategic

A strategic buyer is a business that desires to grow by acquiring other companies.

Private Equity Group

Private Equity Groups (PEGs) are investment vehicles run by acquisitions professionals. They raise private equity funds from other investors to get money to purchase businesses and typically plan to sell them in 5–7 years.

Variations of Private Equity

Micro Private Equity

A Micro Private Equity Group is set up similarly to a traditional private equity group but focuses on acquiring and operating businesses with values less than $5 million.

Search Fund

The Search Fund model is a relatively new type of buyer and allows someone to own a business with little to no money down.

Independent Sponsor

Also known as a Fundless Sponsor, the Independent Sponsor model is when a private equity individual or group finds businesses to purchase, then checks with investors and lenders to see who will fund the deal.

Family Office

Employees

  • How will you decide who will become the leader of the organization?
  • What happens if an employee doesn’t want to participate in the ESOP?

Conclusion

Now that you understand each type of buyer, how do you find the right one for a business?

Analyst @MidStreet