Blog Post

Making a sale to the trade

  • Date: Saturday 23rd January 2010
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You're selling the business right?  Well yes but what is the business?  You might have one idea of what it is that's for sale here, and your potential buyer might have another.  This can cause problems.  You don't want to waste valuable business selling time clarifying all of that because:

·         It takes time and effort

·         At the end of the discussion you may find you're not talking about the same thing

·         It can be a really simple misunderstanding such as whether the customer list is included in the sale

There are a number of ways of selling a company.  You can sell the whole thing, lock stock and smoking liabilities.  You can just sell the assets.  Or you can sell shares in the company. Take a moment and consider the options. 

Finding a buyer is difficult and needs some preparation. Small, privately held businesses are not likely to be interesting to financial buyers like private equity and venture capital firms. So the two most likely exits would be trade sales and management buy-outs.  I’ll talk about trade sales in this blog and management buy-outs next.


Tip from Shaf -Who should I sell to?


Don't just put the business up for sale and see who bites; you'll get a better price if you think about who would want it and then go directly to those people.  Things to think about include the possibility that:


  • Your customers could be worth more than your business  - a new entrant to a market may be prepared to pay over the odds for access to customer just to leapfrog their way into serious contention
  • One of your products may be the piece that fits the gap in someone else's product range
  • You have the distribution solution to their manufacturing needs
  • Economies of scale could mean the difference between long-term survival and failure for a company that is relatively cash rich but struggling with its profit margins
  • Don't forget to look abroad for your potential buyer – your business might be the perfect stepping stone into the UK market for a continental competitor




Trade sales

This is probably the first thing you think of when it comes to selling up and with good reason as it often offers by far the easiest sale and frequently the best return.  In a trade sale you sell the business to someone else who intends to run it pretty much as it is.  One pub owner sells to another pub owner, that sort of thing. 

In this case, look for the reverse of what you were doing when you were buying businesses, searching for synergies where, for example, common customers or suppliers made the sum of two businesses greater than the value of the two separately.  This, of course, has an impact on the price of the deal.  If you can recognise the benefits of the merger to the buyer due to synergies, so that two and two make five, then you can base the price you want on the profits of the new combined concern rather than the old one.

To do all this requires some preparation work.  First you need to do everything possible to let other firms in your field know that you exist. Join trade bodies and raise your company profile in the year or so leading up to the planned exit time. Study the market and draw up a short list of buyers to whom an acquisition may make sense.  Particularly look for people who have already made acquisitions - it’s habit forming. Make sure they know your company and what it does. Study their structure and re-engineer your own company so that there are obvious synergies and as painless a merger as you can plan.


Nurture a relationship with the Trade Press and set some resource aside to get PR in the lead up to exit. Trade magazines are always hungry for stories however mundane. Make sure you feed them.  Speak to local network contacts in banks, local accountants and so on.  But, beware of giving the business a bad name by touting it around too heavily or for too long.


I’m sorry to repeat myself, but preparation is probably the most important part of getting a good price for a business


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