It seems like every other week I get a call from someone looking to either buy or sell an event business. The mergers and acquisitions market for companies in this space has steadily heated up over the past few years, driven by several factors, including low interest rates and the surprising staying power of live events as effective marketing vehicles and revenue generators.
Here then, are a handful of key takeaways I’ve shared with a number of business owners who’ve been approached by potential buyers.
Types of Buyers
Potential buyers fall into two main categories:
- A Financial Buyer is someone who would buy, but not operate, your business. It could be a private equity firm, private investor, etc. They’re looking strictly for a financial return on their investment, and what they’d be willing to pay for your company is based solely on what the existing business can generate on its own.
- A Strategic Buyer, on the other hand, wants to buy your business because it complements his existing business in some way. For example, an event agency that specializes in logistics might purchase an agency that’s known for creative design so they can land bigger jobs that require both skills. Generally speaking, strategic buyers are willing to pay more than financial buyers because, in addition to whatever financial returns the business generates, their core business benefits from some type of synergy as well.
- When I sold my event agency several years ago, it was to a strategic buyer from Europe who wanted to expand into the U.S. By having a truly global footprint, this further enabled them to bid to become agency of record on a worldwide level for multinational companies.
- TIP: Think about what types of strategic buyers might find value in your business. This might require some out of the box brainstorming. For example, a rental company might buy an off premise caterer as a way to lock in their ongoing flow of rental orders.
Recast Your Financial Statements
Most small businesses manage their books to minimize income taxes. Under their accountant’s guidance, they often run a wide range of expenses through their company, many of which are borderline legitimate. This could include cars, travel, meals and entertainment, etc.
Before getting ready for a potential buyer to review your financials, pull out any expenses you ran through the company that a new owner honestly would not have to pay for. On the flip side, if you’ve been underpaying yourself (or not paying yourself at all), plug in a market-rate salary for what a new owner would have to pay for someone to run the business.
Further, look at any cost savings that might accrue to a strategic buyer. If a competitor is buying you, for example, you might be able to consolidate office space, staff, marketing, etc. Show the buyer what the financials of your business could look like once they buy it and apply those savings.
Explain the Past
Any buyer is going to do their due diligence on your company, so assume whatever skeletons are in your closet will be uncovered. It’s always better for you to control the story and come right out and explain any blips you’ve encountered. If your sales took a hit one year because a top account executive left or a key client shut down, explain why that was an unusual circumstance and/or how you’ve learned from the experience so you can prevent hit from happening again.
Sell the Future
Ultimately a buyer is interested in what your company can do moving forward, so it’s up to you to sell the potential of the business under new ownership. Perhaps your business could land bigger accounts by leveraging the internal resources of the new owner. Perhaps profitability shoots up by eliminating redundancies. Think about the best case scenario and be prepared to show the new owner how to get there.
Too Many Eggs In One Basket
Break out your company’s revenue and profit by client. Does a large chunk of business come from one customer? I know a woman who ran a great event business but got hammered when one customer which represented 50% of her revenue put their mega event on hold for several years. Likewise, are you overly reliant on a single employee? If he/she left, would you lose any business? Is a lot of your revenue contingent on being an exclusive vendor somewhere? If so, a buyer will want to look at that contract and see when it expires and how ironclad it is.
These are things a potential buyer looks out for, and the more of them you have, the riskier your company is.
TIP: If you do fall into this category, start making plans to spread your business out so you’re not heavily dependent on any one customer, employee, exclusive deal, etc.
Want to Talk?
Selling your business is a huge step, and one you’re likely only going to go through once. If you’d like to chat with me about it, feel free to email me.