What is the purpose of this article?

Enable company owners or equity investors to discuss why someone would buy control of the company and the company’s value.

You may download a PDF of this article from: Why would someone buy control of your company

What are the critical learnings in this article?

• Control buyers are different from ordinary equity investors.
• There are different types of control buyers and different types of value they are seeking.
• You must understand how a control buyer perceives your company relative to who the buyer sees as your competitors.

What is the difference between buying control and being an investor?

A common difference is that:

• An investor may vote for board directors.
• A control buyer may be able to elect or appoint a number of board directors, remove directors, and may have other decision rights.

What are the seven different types of control buyers?

• Owner/operator;
• Current CEO/Management Team;
• Future CEO/Management Team;
• Buyer who wants a steady stream of future income;
• Buyer who wants to significantly grow the value of their investment by growing your company;
• Buyer who will merge your company into their company;
• Buyer who only values your assets e.g. Intellectual property, talent, technology, etc;

A control buyer may be a blend of different types.

What are the exit options for each type of control buyer?

• In types 1 to 7 above, sell to another control buyer or group of buyers. 6) and 7) would be a divesture.
• In types 1 to 6 above, there may be the option of going public.

What is the value each control buyer is seeking?

• A type 1 buyer may want to increase the value of their investment and/or support their lifestyle using compensation, dividends, and covering other out-of-pocket costs.
• Type 2-5 buyers typically want some combination of income and increasing value of their investment.
• Type 6-7 buyers want to increase the value of the company doing the acquisition. The acquired business and/or assets fills gaps in the company’s value creation plan. E.g. talent, customer relationships, sales and marketing channels, intellectual property, technology, etc.

 What are your next steps?

• Identify the type(s) of control buyer(s) who might be interested in your company and who you might consider selling to
• For each type of buyer, outline their evaluation criteria and related due diligence process.
• Analyze the value of your company from the control buyer’s perspective. Use their evaluation criteria and due diligence process.
• Assess competitors using the same evaluation criteria and due diligence process.
• Rank the potential acquisitions from the perspective of the control buyer.
• Determine the costs and benefits of becoming the preferred company for the control buyer.