The Optimal Buyer for your Business Is Likely to be Large and International
Is it a burning itch to try something new?
Or is it the constant frustration realizing that you will never have enough funding to develop your product or penetrate the markets to their fullest?
Maybe you’re feeling the hot breath of impatient venture capitalists who staked the start-up of your business and are desperate to turn a profit?
Or maybe you’re simply tired and just want to cash in your chips.
Whatever the reason you want to sell your industrial or technology-driven business, don’t be surprised to find the most likely potential buyers are large international companies that specialize in the same general product line or technology that your company does. And don’t expect venture capitalists or business development organizations to seriously compete for your business, especially if you have an annual sales volume between $10 and $100 million.
Multinational specialists are the companies that are buying other companies now and they are also the companies best positioned to maximize the value you will want to derive from the sale. Because make no mistake about it, most $10-$100 million companies—technology or not—that sell themselves don’t get all the money up front. Either the purchaser pays them a royalty or a percentage of future earnings, but a significant part of the pay-out always takes place only over time, and is usually dependent on the performance of the purchaser’s company or the assets purchased.
That means that when you sell your company, you first should conduct due diligence to make sure that the purchasing company will be able to maximize the part of the payout that’s contingent on future performance.
But in general, you’re going to want your company to become part of a large international company that specializes in one area.
The days of the multinational conglomerate with its finger in many pies are rapidly ending. Many of the large international companies that are thriving in today’s global economy specialize in a single industry sector in which they hold a major market share in virtually all national markets. Be it Vodafone in telecommunications, Toyota and Tata in automobiles, Lenovo and Dell in PCs, or Severstal and ArcelorMittal in ferrous metals, large companies are gobbling up smaller ones, resulting in worldwide industries being dominated by a limited number of players.
There are two strategic reasons why multinational specialists have a greater chance of thriving in the global economy than traditional multinational conglomerates do:
- Enormous economies of scale are needed to justify large and ongoing capital investments in many industries, especially raw materials, heavy industry and equipment, manufacturing and global logistics.
- Everything changes so fast nowadays—technology, regulation, marketing channels, the economy—that it’s expensive to keep up with every trend in one industry, let alone several.
For the business looking to sell to a larger partner, the multinational specialist offers something else: it both knows how to grow your business and wants to do it. The tendency of multi-pronged conglomerates is to treat the individual companies in their portfolio as assets that can be bought or sold. The multinational specialist wants to dominate the world markets, and the companies it buys are part of the long-term master plan.
Because it understands how to gain more value from the sale or needs it to help it dominate in one or more geographic markets, the multinational specialist may also be willing to pay a premium to buy the company.
Thus for any industrial or technology-based business, when you’re ready to sell, look abroad, look big and look for the multinational specialist that wants to dominate your industry.
About the Author
Dennis Unkovic is a partner at Pittsburgh-based law firm Meyer, Unkovic & Scott and has more than thirty years of experience as an international transactional attorney. He has authored seven books, edited or contributed to four other books, and written more than 165 articles. He frequently is invited to speak to business groups across the globe, and has given presentation in more than 38 countries. Dennis graduated with distinction from the University of Virginia with a bachelor of arts degree, and earned his juris doctor from the University of Pittsburgh School of Law.