Selling Your Business to a Foreign Buyer
My business sells replacement parts for tractor and truck engines. I have customers in 25 nations, as our products are highly popular in overseas markets, particularly in developing countries. I'd like to sell the company and am interested in promoting the sale internationally. How do I start?
—W.K., Turlock, Calif.
Start by pulling together and organizing your company's past three years' worth of tax returns, financial statements, and sales records. This paperwork will help a qualified business appraiser make an independent valuation of the company's market value.
"Before you approach any potential buyers, you want to have an informed understanding of what your business is worth," says Glenn S. Liebman, a forensic accountant who does business valuations at the Woodbury (N.Y.) firm of Klein Liebman & Gresen. Ask your business appraiser to prepare a written analysis of the business that you can present to interested buyers.
Your next step will be to hire a professional—typically a business broker or investment banker, but sometimes attorneys or accountants serve this function—to represent you to potential buyers, shepherd your company through the due diligence process, and help you evaluate offers. Business brokers typically will ask for a modest retainer up front to offset initial marketing costs.
Commissions are paid at the close of the sale and range from 6% to 10% of the sale price. A broker will serve as an intermediary between you and potential buyers, representing your interests and shielding your company from unqualified parties. "You don't want your competition to find out that you're thinking about selling your business," points out Gene Pepper, a Glendale (Calif.) business consultant and broker.
That's why you'll want a third party to be the public face of your sale. Such a professional will disclose your identity and the financial details of your company solely to parties who demonstrate a serious interest in purchasing. "A broker knows what questions to ask to separate [potential purchasers] who are real and sincere from the phonies and people who could be a danger to your enterprise," Pepper notes.
USING THE WEB.
The International Business Brokers Assn., http://www.ibba.org/, based in Chicago, is a trade organization representing brokers all over the world. Its Web site includes a "find a broker" function that you may find helpful, as well as information about the various professional certifications that business brokers can hold and what they mean.
"Choose an intermediary with a good, proven Web site," Pepper recommends. "In today's business-for-sale marketing, the Internet is invaluable."
Colin Gabriel, a longtime business broker and author of How To Sell Your Business and Get What You Want, published by Gwent Press, recommends that you consider listing your company anonymously (or have your broker do so) at SellerWorks.com, a Web site that allows sellers to list for free. Buyers and brokers who want to contact you will pay a fee to get your contact information. Then you—or your broker—can decide which inquiries to follow up on.
"Over 90% of the answers you get will come from intermediaries. Most brokers will pursue any and all deals, but you might find brokers [based in the U.S.] who were born elsewhere—say India or Britain—who work on deals with people in their country of origin," Gabriel says. "Once, I initiated a transaction via this Web site where the buyer was in France, the seller in New Jersey, and a critical supplier in Taiwan had to approve the transaction. Somehow, it worked."
While you are smart not to exclude potential international buyers, don't assume that you'll get a better price abroad, Gabriel says. "There is almost certainly much, much more money chasing deals [in the U.S.] and more willingness to accept risk. Closing a business sale usually takes months, with risks at many stages, and a foreign buyer—especially from a developing country—would be especially problematic."
Plenty of U.S. companies would appreciate the fact that you are doing substantial international sales, Gabriel notes, and you are likely to get a higher price with fewer hassles if you sell domestically.
For additional information on this topic, check out the Kauffman's eVenturing Web site, which currently features several articles from experts offering practical guidance on business sales and from entrepreneurs who have successfully sold companies. Good luck!
Have a question about your business? Ask our small-business experts. Send us an e-mail at Smart Answers, or write to Smart Answers, BusinessWeek.com, 45th Floor, 1221 Avenue of the Americas, New York, N.Y. 10020. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally.