When an investor considers an opportunity to acquire another business, they are typically interested in the following values.
1. Staff
For most businesses, people are the core product. Ensuring that the compensation and profit distribution structure aligns with industry standards and is similar to that of the potential buyer offers significant benefits. The closer the seller's benefits package is to the benefits package the buyer provides to its employees, the better. A potential risk of a merger is the difficulty in balancing the interests of certain groups, leading to employee resentment.
2. Technology
For some industries, technology is not a critical issue, but it is actually a core issue for others. The Seller must demonstrate the ability to maximize the value of the technology, ensuring that the technology retains its value and is upgradeable, while also allowing the Buyer to increase its value upon acquiring the business.
Determine the value of technology by considering the cost difference between buying new and building it yourself (initial construction costs, plus losses in revenue and market position from the time it takes to enter the market...).
3. Product
New products are one of the most common and attractive reasons for acquiring a company. Creating products that fit into the Buyer's product portfolio is an effective way to make the company an attractive target, of course, considering factors that will allow the product to integrate easily (pricing structure, product distribution, and other characteristics).
Another interesting way to both develop products that suit the Buyer and attract the Buyer is to develop a cross-selling model (the Buyer sells the Seller's products and vice versa). This model aims at two goals: reducing the Seller's costs in adapting its products to the Buyer's product range and providing the Buyer with concrete evidence of the Seller's product value. Typically, we see large companies acquiring smaller product suppliers once their attractiveness to the Buyer's customers has been proven.
4. Customers
Acquiring a business means acquiring its customers. That's also the simplest and least risky reason to buy a company that wants to sell.
The value of a customer to the Buyer is based on many factors. Because the cost of acquiring a customer is significant, a long-term and close relationship is the greatest value of a customer. To demonstrate customer value, the Seller needs to maintain and document specific information to prove the value of their loyal customer base.
Customer quality is also an important parameter (customer's prompt payment rate, credit commitment, and growth in purchasing power over time, and several other factors). Again, it is necessary to record these essential figures in a way that demonstrates this value to the Buyer.
The extent to which customers are geographically distributed is also crucial. If the Buyer lacks a geographical, cultural, economic, or other sociological advantage in the market segment, a Seller with a strong customer base in that segment can become particularly attractive. Having comprehensive customer data will allow the Seller to demonstrate customer value and tailor their business to the needs of the potential Buyer…www.expertis.vn
In addition to needing detailed customer data, the Buyer needs to consider the possibility of customers abandoning the business after it is sold (which the Buyer will certainly consider). To mitigate some of this risk, the Seller could send messages to business customers (reassuring them by emphasizing that their service and level of focus will not change, or the Seller could discuss with the Buyer to develop a customer retention plan...).
Even if these issues cannot be resolved, understanding these risks will help the Seller build value that aligns with potential Buyers and select attractive Buyers.
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