For any business owner considering a future sale it is vital to understand the different motivations of trade and financial buyers.

In our previous post about ‘exit strategies’, we discussed, very briefly, two different types of sale – a ‘Trade Sale’ and a ‘Financial’ or ‘Private Equity’ sale. In this article, we will delve more into a Trade Sale and its attributes.

A Trade Sale refers to the process of selling the business to another company. Often this is within a similar or overlapping industry and can be between businesses operating in the same country or overseas.

A trade buyer is looking for synergies that will enable both companies to grow more quickly than they would as individual entities.

Depending upon the motivations of the buyer and the seller, a Trade Sale can be a complete Takeover or a partial Takeover.

Why should Vendors consider a Trade Sale?

The majority of transactions are made by trade buyers, although there are pros and cons to each type of buyer.

• Higher Valuation – For some SME’s, their growth profile may be better suited to a trade buyer and consequently the valuation may be higher.
• Deal structure – A trade buyer could be more likely to pay the full amount of the agreed transaction value on completion. It is worth stressing ‘more likely’ as much depends on the financial, and growth, profile of the business for sale.
• Faster completion – A trade sale can be less complex and the time in due diligence could therefore be reduced.
• Continuity – A trade buyer may intend to retain the business for the long term.
• Wider choice – An effective M&A Adviser will search for potential acquirers with solid strategic reasons for the transaction. This potentially provides a wider choice of buyers who may be less restricted by factors such as size, growth profile etc, which will be typically preferred by financial buyers.

It is worth noting that some trade buyers are also funded by Financial Investors, Private Equity firms or other types of investors. This ‘hybrid’ trade buyer is often found in transactions where the financial backer is executing a ‘buy and build’ strategy in order to create a significantly larger, and ultimately more valuable, group.

• Flexibility – Owners of private business often want to sell in order to lose the administrative burden of running a business, which can diminish the entrepreneurial flame that is at their core. A trade sale might offer the opportunity to have a role within the new group, with the salary and incentives that such a role would bring without the overall responsibility of running the business. But founding shareholders need to ask themselves how they will feel when someone else is running the business they originally created.

Successful businesses are growing businesses who are searching for ways to increase value. Some will have an ‘organic only’ growth strategy; others will combine this with growth through strategic acquisitions. They will seek out synergistic businesses in order to increase revenues and profit through, for example, entering new market sectors or territories. Buying a trading business provides a ready-made infrastructure and established brand, enabling a faster market entry. The buyer gains access to the seller’s resources, such as physical assets, intellectual property, technology, or skilled employees, which can enhance its own capabilities.

Finding the right buyer will unleash your business’s full potential, taking it, and your staff, to the next level. We often find that the highest bidder is not the winning bidder! Strategic and cultural fit is what wins the day because the seller and buyer are more aligned on the post transaction integration, growth strategy and cultural fit.

As a long-established premium provider of business sale advisory services to UK businesses, EvolutionCBS offers business owners a complimentary and confidential discussion on how their specific objectives could be met and provides pragmatic, practical advice on how to begin preparing both themselves and their businesses for future sale or investment. 

EvolutionCBS works with owners of UK businesses in any sector, finding buyers from around the world through highly targeted research and supporting clients with dedicated Director-led teams, at every stage of their journey to a successful sale or investment. 

If you are an owner or shareholder of a business and would like a no-obligation consultation on the sale of all or part of your business, please email: info@evolutioncbs.co.uk or contact us on Tel: 0118 959 8224.