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Undertaking a Strategic Sale

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A strategic sale can garner the maximum price for a business and is top of mind for many business leaders.   According to SunTrust research, sixteen percent of business executives plan to sell or merge their businesses with another firm, and another twelve percent are considering a transition with strategic sale as a possibility.

By finding the right acquirer, identifying valuable synergies and closing a sale, business leaders can capture not only the financial returns from a business, but also gather additional value from the synergies two complementary businesses can generate.

Understanding strategic sales

Business sales typically fall into two categories, financial and strategic.  Financial sales focus on a company’s financial returns, starting from a baseline of historical value and considering growth and margin improvements to ongoing cash flows and capital gains.  Typically, these transactions are the realm of the private equity investor (link to PEG product sheet), although there are diversified companies who look to invest in this manner as well.

A strategic buyer is often in a related business with the target company.  A buyer may be looking to control more value creation or gain a strategic advantage through vertical integration.  Another may want to eliminate a competitor for pricing or sales gains, or look to add a new market segment or operational skillset. Acquirers could be seeking:

  • Synergies between combined companies.  Examples include sales growth with complementary products amenable to cross sell, product development pipeline and distribution consolidation.
  • Answers to changing Industry dynamics.  Some acquisitions change industry dynamics by providing additional strength over customers, suppliers and/or competitors. 
  • Expanding a successful business model.  The acquirer imposes its model on smaller companies that can benefit from its expertise.
  • Filling in the gaps.  An acquirer may purchase a company with expertise (proven success, skilled staff or management) in areas where it is lacking.  In today’s agile world, acquirers may decide it is cheaper to buy than to build needed capabilities.

Evaluating fit for your business

Business leaders pursue strategic sales to achieve a range of business goals including releasing owner liquidity, creating strategic advantage in their industry or setting up a leader’s transition.  While rationale for a combination can vary widely, there are some common considerations for owners considering a strategic sale:

More paths to higher valuations:  A strategic buyer can appreciate your competitive advantages as they exist company-wide and in specific products, processes and capabilities.  A strategic acquirer is in a great position to unlock this value by taking pieces of one business and merging them for a greater whole.  A financial buyer is limited to financial levers to boost return on investment.

Knowledgeable buyers:  A strategic buyer typically knows your industry and maybe your company well.  Expect probing questions and buyers who may know as much about your business as you do.  Carefully consider the effects of telling your competitor and (in all likelihood) your customers that you are “for sale”.

Management team redundancies.   A strategic buyer looking to combine operations and find synergies will likely find redundant positions as they search for cost reductions.  This can be an advantage in a transition situation or a drain on morale and management execution in others.

Control and upside.  Merging with a peer will usually mean compromising management autonomy.  Also,  a team accustomed to tight focus on its own success to determine its financial future may be frustrated by trading for another company’s equity or losing equity appreciation altogether.

Customer retention and brand.  With a new or modified brand and with potential sales, product and servicing changes, customer allegiance is at risk and, realistically, you should plan for attrition during the merger.

Initiating the sale process

There are a number of items to consider in pursuing a strategic sale:

Preparing your story.  You must be ready to make your case with potential purchasers.  That means complete financial records along with business summaries and plans that tell the story of your business.  Highlight the key components of the business like unique product attributes, access to markets, brand names and distribution channels along with intangibles such as vendor relationships, operations and systems development, customer loyalty and key personnel.

Marketing your company. A potential buyer’s first step will be to “Google” you. Be prepared for press releases, company news and search results to be scrutinized. Some companies target potential purchasers in trade and industry publications to increase exposure.  While this does not substitute for the help that a banker can provide in marketing your business directly to acquirers, it does support their efforts.  You also need to decide whether to announce the possibility of a sale publicly.  A public announcement may draw more potential suitors at the costs of customer and supplier disruption.

Identifying and reaching out to prospective buyers.  You and your advisors should review competitors, customers, employees, suppliers and any other firms that are suitable as a strategic buyer. Your advisors can help you make overtures to appropriate parties. 

Putting together a deal.  As you field inquiries from interested parties, you and your advisors can develop the best approach for soliciting, evaluating and negotiating offers.  Undoubtedly, you will be offered multiple potential deal structures.   Now the fun begins in analyzing and comparing your offers and options.

Your SunTrust Relationship Manager can serve as your guide during this process.  Your Relationship Manager knows you and your business and can help you link the strategic sales process to the goals of your longer term plans.   SunTrust Robinson Humphrey’s M&A specialists can also guide you and provide advisory services.  This SunTrust team combines the understanding of your business, your industry and the market to support you in a successful strategic sale.


This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

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