How To Sell A Business As A Bolt-On
Short answer: Don't!
Don't describe your business as "an ideal bolt-on" as that's an act of severe self-harm! This page explains why.
One of the biggest mistakes business owners make is claiming that their business would be good as a bolt-on.
I believe vendors should never, ever say refer to their business as a potential bolt-on or as an ideal bolt on. Saying that immediately loses them, probably, about 20% to 30% of the value in their business!
Vendors see the ideal buyer as, perhaps, a multi-national or a listed company in the same industry or a related one.
What they expect is that a large firm in a similar line of business will see synergies from the acquisition and will therefore be in a position to pay them a higher price. The thinking is that such an acquirer will be able to make oversized profits from the business, over and above what a "financial buyer" would be able to make.
The logic is sound, very sound, but how do buyers / investors perceive the "bolt-on" term?
Here's what you're ACTUALLY saying to an investor:
What you're actually saying is that your business needs to go to someone in the same industry, someone who understands the sector.
It suggests that some key talent required to run the business - perhaps the owner / manager - will be leaving and needs to be replaced hence your need for a buyer who can fill the gap.
You need, you need. That's not good!
Why else would you describe yourself as a bolt-on rather than as a business capable of running independently? Here are some right things to say.
You're screaming that you're in a position of vulnerability as you are not an attractive target for anyone except a firm that already understands your sector. It says that your options are limited, that you are going to be forced to make concessions on price because you don't have a choice of the best buyers.
Don't agree? No, of course you don't
The reason you're calling yourself a bolt-on is because you think that makes you more valuable.
You are wrong. It damages your value in a big way.
Here's what Divestopedia says about bolt-ons:
Bolt-on acquisitions are usually smaller companies with very little financial and administrative infrastructure. They are typically operated by the company owner and ...may have unsophisticated financial systems, IT and internal controls, but are usually excellent operating companies with good customer relationships. This is why private equity-backed platform companies or corporate buyers with the infrastructure in place can be a perfect fit. Given the lack of infrastructure at these (bolt-on) companies, buyers will usually pay a lower valuation multiple for a bolt-on acquisition than they would for a platform company.
Let me repeat that: Buyers will usually pay a lower valuation multiple for a bolt-on acquisition!
The type of buyers constituting your target are not people who act on impulse. They have sophisticated financial experts advising them, whether their own Finance Director or a third party corporate finance firm.
The board will act based on the advice these experts give them. And do you know what the experts are telling them? They're saying that you're a defective investment. They are telling the buyer that he should buy you only if your defect is reflected in the price ie. they're looking to get you on the cheap.
To them, you've painted yourself into a corner and have a business that's excessively reliant on your personal skills. You desperately need someone like them to fill the skill gap left by your departure. You should suffer for that flaw by making big concessions on price.
You've got to know how your BUYER thinks!
If you want the money you need to know how the people with the money think.
While you are prettifying your numbers and raving about the great potential in your business they are making far more mundane assessments.
If it's a bolt-on, rather than an acquisition that can stand on its own two feet, they've got to plan for transition, for transferring assets and resources between their current business and yours, for executing plans to extract synergies etc. It's a lot more work for them, and a lot more risk.
They are trying to work out the skill gap that they are going to have to fill. They are trying to work out how much it'll cost them in wages to hire that talent (or whether they can spare existing talent from within their own organisation). And they're trying to work out what impact all this will have on the figures going forward - both your figures and theirs.
If they buy a business that is not a bolt-on, they can just leave the business to get on with what it's doing. There's no further time to be invested, no additional cash to be pumped in to make changes, no resources from their own business to be diverted, nothing.
Not so with a "bolt-on" (which is a pain-in-the-ass kind of acquisition).
With a bolt-on they also need to assess how they can integrate your business with theirs, what systems will work well together, what processes and procedures of yours (or theirs) need to change. Will your accountancy package "talk" to theirs? Will they have to dump all your existing packing material and reorder new stock with their branding (or a co-branding)? Will they have to sack staff at either company (and how much is that going to cost in redundancy)? There are a million questions to be addressed most of which have cost or performance implications and can be hugely damaging to their own operation if they don't get right!
There's a lot to consider because this is more like a merger than an acquisition!
Mergers are complicated, expensive affairs that often go wrong. They require operational, management & cultural changes to both organisations. They are far more risky. And, the buyer is thinking, that's another reason why the offer price should be lower than it otherwise would be.
So what should you do if you're damaged goods & need to be sold as a "bolt-on"?
Short answer: Play your cards carefully and try not to come across as a bolt-on!
Or, better still, fix that flaw. Make the business less dependent on you, however long it takes, and go back on the market when that's done.
But it was your broker who advised you to list as a "bolt-on"?
Sadly, many business brokers and business transfer agents don't understand that calling a business a "bolt-on" is not a good idea. Perhaps you could point them to this article.
Or, better still, find another broker!
Our main job here is matching business owners with the right (and competent) business brokers. When it comes to choosing business brokers ...business owners are notorious for getting it drastically wrong if they make the choice themselves and without expert advice.
If you're large enough to afford a decent broker, you should get in touch.