Selling Your SME to Private Buyers: Success Stories and Key Insights

Global Growth Strategies

Selling Your SME to Private Buyers: Success Stories and Key Insights

For many small and medium-sized enterprises (SMEs), selling their business is not just a financial decision but an emotional one. Whether it’s retiring after decades of hard work or moving on to new ventures, ensuring a smooth and successful transition is crucial. One increasingly popular route is selling to private buyers—individuals or private firms seeking to acquire established businesses for expansion, diversification, or investment purposes. This path offers significant advantages, particularly for SME owners who prioritise legacy and stability over a quick exit.

The SME Market and M&A Activity: A Growing Opportunity

The mergers and acquisitions (M&A) market for SMEs has been steadily growing, with private buyers accounting for a large share of the deals. According to a BizBuySell Insight Report, there were over 9,600 small business transactions in 2022 alone, with private buyers making up a significant portion of the market. Private buyers are often attracted to SMEs for several reasons:

• Cash Flow: SMEs generally offer stable and predictable cash flow, which is appealing to private investors.

• Growth Potential: Many SMEs are ripe for growth but lack the capital or resources to expand further. Private buyers often step in to help the business scale.

• Established Operations: Private buyers are more likely to purchase businesses with proven track records, stable customer bases, and operational efficiencies.

In addition, the global SME M&A market saw a surge during the post-pandemic recovery, with deal-making activity driven by lower interest rates and investors seeking safe, profitable acquisitions. PitchBook reported that in 2022, private equity accounted for nearly 40% of all middle-market M&A transactions, underscoring the growing appetite for SME acquisitions.

Why Private Buyers are a Good Fit for SMEs

For SME owners, selling to a private buyer can be particularly advantageous. Unlike larger corporations or institutional buyers, private buyers often seek long-term growth and stability, not just short-term gains. Here’s why private buyers can offer a successful exit:

1. Personal Connection and Legacy Preservation:
   Private buyers often come with a personal touch. They might be entrepreneurs looking to build their portfolio or family offices that value the heritage of a well-run SME. Many SME owners care deeply about the future of their business and staff. Private buyers are more likely to maintain the business’s values, culture, and mission, making the transition smoother and more reassuring for the seller.

2. Flexibility in Deal Structure:
   Private buyers tend to offer more flexible deal structures. Whether it’s an earn-out, staggered payments, or even retaining some equity in the company, sellers have more negotiating power. This flexibility allows SME owners to align the deal with their personal and financial goals.

3. Focus on Continuity and Growth:
   Unlike large corporations that might cut costs or merge operations, private buyers are usually more invested in maintaining and growing the existing business. This means preserving jobs, keeping existing customer relationships, and expanding the business without disrupting its foundation. For sellers concerned about the legacy of their business, this focus on continuity is invaluable.

Keys to a Successful Sale

While selling an SME to a private buyer can be a rewarding process, it requires careful planning and preparation. Here are some key strategies to ensure success:

• Prepare Early: Preparing your business for sale is essential. This involves ensuring your financials are in order, your operations are streamlined, and your legal and compliance matters are well-documented. Buyers are more likely to offer better terms for businesses with clear, transparent histories.

• Valuation Matters: An accurate valuation is critical. Overvaluing your business may deter buyers while undervaluing it could lead to regret. Engaging a professional valuation expert ensures you hit the right balance. Keep in mind that private buyers will scrutinise cash flow and growth potential, so these factors must be realistic.

• Due Diligence is Crucial: Private buyers will perform due diligence to assess your business’s health, including reviewing financials, contracts, employee agreements, and customer relationships. Ensure that you have all necessary documentation prepared and accessible to facilitate a smooth due diligence process.

• Communication with Staff: Maintaining confidentiality during the sale process is crucial to avoid disruptions in operations. However, once a deal is close to finalisation, it’s important to communicate with key employees to ensure they are on board with the transition. A smooth handover will depend heavily on retaining critical staff members who can guide the new owners.

Success Story: A Real Example of a Seamless Sale

Let’s look at the example of GreenCo Services, a family-owned landscaping company that successfully sold to a private buyer. The owner, nearing retirement, was concerned not only with receiving a fair price but also with ensuring his employees, some of whom had been with the company for over 20 years, would be taken care of.

After a thorough valuation and a careful vetting process, the owner sold GreenCo to a private buyer who was looking to diversify his portfolio of local service businesses. The buyer offered a flexible deal that included an earn-out provision, allowing the owner to remain involved in the business for a transitional period while ensuring a fair price was paid. The employees were retained, and the buyer invested in expanding GreenCo’s offerings into commercial landscaping services, which led to a 25% growth in revenue within the first year post-sale.

This success story illustrates how, with the right buyer, selling an SME can not only provide financial reward but also preserve the business's legacy and protect employees.

Conclusion: Partnering with Experts for a Smooth Sale

Selling an SME to a private buyer offers numerous advantages, but it also requires careful planning, preparation, and the right partners. At Revalir Group, we specialise in helping business owners navigate the complexities of mergers and acquisitions, ensuring that your sale is not just financially rewarding but also leaves your legacy intact.

Whether you’re ready to sell or just exploring your options, our team is here to help you every step of the way. Contact us today to discover how we can make your business sale a success.