Individual Buyer
The first buyer type is the individual buyer. This is typically an individual with substantial financial resources, and with the type of background or experience necessary for leading a particular operation. The individual buyer usually seeks a business that is financially healthy, indicating a sound return on the investment of both money and time. The individual buyer will hit a strong bottom line when it comes to price. Therefore, these buyers will usually limit themselves to transactions involving less than $1 million cash.

​The individual buyer may have experience in the industry of the business for sale. They could have been saving for just this type of situation, or possibly have other resources to finance the purchase.

​The individual buyer looks like someone that might even work in the business for sale. Maybe the General Manager or another key employee. In this instance, identifying the person within the company early is beneficial. A Succession Plan can be developed to include the process the employee follows to buyer the company. This can include seller financing, secure a SBA loan, or a conventional bank loan.

If there is nobody within the organization that is interested or able to buy the business, the current owner may need to take it to the open market. Business for sale websites and other marketing maybe involved. If the business owner does not want to risk letting the world know it is for sale, they should begin succession planning earlier.

You and your consultant should be developing a targeted list of possible purchasers. During this process the advisor’s knowledge of the mergers and acquisitions marketplace will be extremely valuable. Your advisor should have a feel for which buyers are actively pursuing investment opportunities and a good sense of the attractiveness of your particular industry segment to such investors. Potential buyers usually fall into one of the following categories:

1. Individual buyer
2. Strategic buyer
3. Synergistic buyer
4. Industry buyer
5. Financial buyer

We will talk in detail about each of these types of buyers in the coming weeks.
 
The ‘A’ List
Usually, an ‘A’ list of potential buyers is identified in the first instance. These potential buyers will probably be contacted on a no names basis using your business broker as an intermediary. The group may average 5 to 10 potential acquirers, but could have as few as 3 or as many as 20.
‘B’ or ‘C’ buyer classifications serve as a backup only after the ‘A’ list is exhausted. Another option is to break your buying list into two groups: competitors and non-competitors. Competitors could receive a more generic memorandum than non-competitors, in order to manage the risk of information leaks. While this approach may be beneficial, it could also cause confusion because it creates two parallel processes that may be difficult to control.