Business transitions can take many forms: family succession, management buy-out, third-party sales, the list goes on. However, no matter the form your buyout takes, you should be aware of three basic types of B2B transitions: Strategic, Financial, and Competitive. We have detailed each below for your consideration in strategizing your upcoming transition.
Business to Business transitions—also known as sales to a third party—represent 50% of all business transitions. These strategic mergers are undertaken as a way to create greater synergy in the market; they are designed to increase profitability. This type of merger may be catalyzed by geographic expansion, product line expansion, new technology acquisition, an emphasis on increased market visibility, and supply chain security. In most cases, B2B Strategic transitions retain management from both parties, allowing small business owners to remain partners after the merger.
Financial mergers directly change the buyer’s financial position through the acquisition. The buyer is often a larger entity and will therefore have a range of opportunities that may become available as the result of a stronger financial statement. This could manifest as increased revenue and earnings, access to new markets, access to capital, and increased purchasing leverage within a supply chain. B2B Financial transitions necessitate confidentiality.
There are two separate B2B Competitive transitions: Friendly and Hostile. A Friendly sale occurs when an offer is favorably received because the selling company has reached a plateau in its ability to grow. There are strong mutual understandings of vision, culture, and management style. In this case, the price and terms offered will likely be lower than if the business was brokered in an open market. A Hostile sale occurs when the objective of the buy-out is to remove competition from the marketplace. The process often begins with an unsolicited offer from the seller. If initial bids are rejected, the potential seller may resort to other tactics—appeals to partners and management through public relation channels–in an attempt to bring the owner back to the negotiating table.