Whether a searchfund looking for a buy-and-build (B&B) strategy, corporation growing a company through acquisitions, or an entrepreneur wanting to buy a business, sometimes buying an existing company is a better option compared to establishing a new business. The right company for sale that can increase strategic capabilities and profitability of the buyer. Finding one is a challenge. This article will help you find companies for sale both on-market and off-market.
Benefits of Buying an Existing Business
Buying an existing business can leverage some advantages and reduce risks of starting a new or investing in a startup. Unlike a startup, an existing business is already operational, which means you can start generating revenue after closing and post-deal implementation. Steady income from an established customer base and ongoing contracts reduces uncertainty and offers a solid foundation for growth.
The advantages of acquiring an existing company include, among other things:
- Established customer base and reputation: An existing company comes with loyal customers and a recognized brand, market presence and trust.
- Proven track record and cash flow: Established financial performance and revenue streams reduce uncertainty and offer a solid foundation for future growth.
- Better negotiation power: Existing businesses with stable cash flow and assets can often secure better financing terms and lower interest rates. Lenders are more willing to finance the growth of established companies.
- Existing team and infrastructure: Inheriting a skilled workforce and operational systems accelerates business operations and eliminates initial setup costs. Sellers typically want to ensure a smooth transition, provide knowledge and support during the handover period.
- Faster path to profitability: With an established customer base, revenue, and operations, The time required to achieve profitability is significantly reduced, which can result in faster ROI.
- Platform for growth: A buy-and-build platform has a significant value for growth opportunities through follow-on acquisitions. They allow for faster growth and expansion.
- Skilled Workforce: An experienced team familiar with the operations can save time and resources spent on hiring and training.
Types of Businesses for Sale
There are different businesses for sale for various reasons, such as retirement, changes in strategy, or other personal and professional factors. When considering a purchase, buyers can choose between franchises and independent businesses. Franchises offer brand recognition and a proven business model but come with less operational flexibility. Independent businesses provide more control and uniqueness but may require more effort in establishing processes. Common industries where businesses are frequently bought and sold include retail, hospitality, healthcare, technology, and manufacturing, each offering unique opportunities and challenges.
How to Find Companies for Sale: Two approaches
Whether you're looking for a well-established enterprise or a hidden opportunity, knowing where and how to search is key. Private equity firms, investment banks’ and M&A advisories’ strategies to find companies open to sell typically involve a mix of market analysis, platforms, networking, and leveraging professional relationships. Here are approaches for finding companies for sale on-market and off-market. With the right tools, you can streamline your search and uncover the opportunities otherwise missed.
1. Finding Businesses for Sale (On-Market)
Online Marketplaces
Utilizing commercial databases and marketplaces can help identify potential targets. Online marketplaces like BizBuySell and LoopNet provide platforms for listing businesses for sale near me, allowing users to search by location, industry, and price. BizBuySell’s platform includes listings of various types of businesses across multiple industries and locations, and tools for valuing businesses. The site also offers resources like business valuation reports, franchise information, and a directory of brokers to assist both buyers and sellers in the transaction process. LoopNet is an online marketplace for commercial real estate, with functions to find also businesses for sale. It serves those looking to buy, sell, lease, or rent commercial properties or buy an existing business.
Business Brokers
Business brokers are essential in connecting buyers and sellers, offering market insights, valuation assistance, and negotiation support. They streamline the acquisition process, making it smoother and more efficient. To find a reputable broker, seek recommendations from industry contacts and check credentials through professional associations.
Industry Associations
Industry associations often facilitate connections within specific sectors. They help buyers connect with sellers and find businesses in line with their strategic goals. Associations’ events offer buyers a chance to connect with key decision makers and businesses for sale by owner. Many industry associations maintain comprehensive member directories that list businesses and their owners, which buyers can use to find potential companies for sale within their industry of interest.
2. Finding Off-Market Companies for Sale (Hidden Gems):
Off-market companies aren't listed publicly, which underscores the importance for tailored solutions for this specific user profile and use case. Finding valuable ventures before competition is a challenge, but an investment into an efficient tool pays itself back fast.
Tools Tailored for Investors
The best way to find off-market companies for sale is through specialized tools like Inven. Tailored software helps in tracking and analyzing companies that fit investors’ investment profile. With Inven, you can search for companies in any niche that have an intent to sell.
The 'Intent to Sell' filter is especially useful to find small businesses for sale, or companies that will go through a generational handover in near future.
You can use functions to narrow the search by example companies, target company keywords, growth, size, and operational location. The operational location filter is especially good if you want to find companies that have headquarters in one city, but operations in another. With the results, you immediately get a list of potential targets, and an access to relevant and verified contact data.
Private equity firms use Inven to find portfolio companies, investment banks to build buyers lists and acquisition lists, and corporations to find add-on targets.
Finding off market companies for sale: More strategies
Connections and networks
Becoming a trusted connection in your network pays off with insider knowledge about owners likely considering a sale. Access to a wide network can sometimes provide leads, and the right connections are invaluable when searching for off-market companies for sale. Joining informal professional groups can also sometimes uncover leads on to businesses for sale near you and potential opportunities.
Industry Publications
Staying informed through industry news is another strategy to detect changes in the market that can indicate the need for a new ownership. News outlets, dedicated company data platforms, and trade journals often report on strategic changes within companies. These sources can provide hints about businesses that may be open to selling. Subscribing to industry-specific newsletters keeps you updated on potential opportunities.
Direct Contact
Taking the initiative to reach out directly to businesses can also yield results. Identifying established companies that align with your investment goals and contacting their owners can sometimes reveal those who are willing to sell but haven't actively sought buyers. When approaching off-market businesses, confidentiality is crucial. Ensuring that all communications and negotiations are handled with the utmost confidentiality builds trust and protects both parties' interests, resulting in a smoother acquisition.
When approaching off-market businesses, confidentiality is crucial. Ensuring that all communications and negotiations are handled with the utmost confidentiality builds trust and protects both parties' interests, resulting in a smoother acquisition.
Evaluating Businesses for Sale
Before closing, a thorough examination is essential to ensure you're making a sound investment that is in line with your long term strategy. Conducting due diligence involves a comprehensive review of the business’s operations, finances, and market position. Due diligence provides a detailed picture of all aspects of the company. Thorough reviews on financials, legal considerations, governance and compliance, industry and market position are being conducted by M&A professionals. Below are the key points to remember.
Due diligence checklist:
- Financial Statements: The last three to five years of financial statements, including balance sheets, income statements, and cash flow statements.
- Tax Returns: Examine past tax returns to ensure consistency with financial statements.
- Revenue and Profit Margins: Analyze revenue streams and profit margins to identify trends and potential issues.
- Accounts Receivable and Payable: Check the age and reliability of receivables and the timing of payables.
- Debt and Liabilities: Assess all outstanding debts and liabilities to understand the financial burden.
- Costs: Evaluate fixed and variable costs to determine the efficiency of operations.
- Contracts and Agreements: Review all contracts with suppliers, customers, and employees to identify obligations and commitments.
- Licenses and Permits: Ensure all necessary licenses and permits are up-to-date and transferable.
- Litigation and Disputes: Investigate any past or ongoing legal disputes or litigation.
- Compliance: Check compliance with industry regulations, standards and corporate responsibility demands.
Market and Industry:
- Industry Analysis: Understand the current state and future outlook of the industry.
- Competitive Landscape & Market Share: Identify key competitors and assess the business’s competitive position. Evaluate the business's market share and long-term potential for growth.
- Customer Base: Analyze the customer base for diversity and loyalty.
- Technology and Innovation: Assess the use of technology and potential for innovation within the business.
Evaluating a business for sale is a complex process that requires meticulous attention to detail. Expertise, experience, and an objective perspective are needed to conduct the due diligence process and to avoid potential pitfalls. Accountants support the analysis of the financial health and viability of the business. Lawyers are essential for reviewing and interpreting legal documents, contracts, and agreements and ensuring the business is in compliance with all legal requirements.
The Most Efficient Ways to Find Companies for Sale
Finding companies for sale, whether on-market or off-market, requires utilizing the right strategies and tools. On-market options include business brokers, online marketplaces, and industry associations, while off-market opportunities can be discovered through specialized tools, networks, and direct contact with business owners. It is smart to complement strategies relying on personal contact with AI-based search tools that find companies otherwise uncovered.
The more effective strategies to find businesses for sale include using tools like Inven, which are tailored to support investors in their deal search. With the new generation of tools, building a comprehensive list of potential targets becomes more convenient.
If interested to learn more, consider booking a demo.
