In the 30 +/- years of since I began practicing law, I have worked on hundreds of sales and purchases of businesses. This is the second chapter in a series of blogs wherein I will share my observations and experiences. I encourage you to go back and read this blog series from the beginning.
The second reason a strategic buyer will purchase a business is to provide expansion of products/services.
Expansion of products/services. Most business purchases by Buyers seeking to expand their product line/services are successful. These types of transactions are typified by Buyers with related industry experience. Examples of this type of acquisition could include:
An insurance agency who focuses on sales of life insurance buying an agency with expertise in property and casualty insurance.
A car dealership which buys another car dealership which represents a different manufacturer.
Sellers in these types of transactions are often motivated by personal reasons such as retirement, health issues, or unrelated indebtedness. It is not uncommon in these types of transactions for the Seller (or a key employee of Seller) to remain involved in the operation of the business after its acquisition. In the examples above the Seller might run a “division” of the Buyer’s business which engages in the Seller’s business. In these types of transactions, it is very important that as part of the transactions the Seller agrees that he/it will not compete with the Buyer for a period of time (normally 2-5 years) after the Seller is no longer involved with the business.
Next I will be covering Entry into the Market.