Are companies bought, not sold?

If you're considering selling your business, you will sometimes hear this phrase: "The best companies are bought, not sold".

What does it mean? And is that actually true?

The logic is as follows:

The best exits for sellers happen when a business is not for sale but gets sought out by a willing buyer. 

If you follow that train of thought... the best way to get an exit is to just focus on improving your product and growing your business. Head down. Don't proactively look for a buyer, the right one will come to you.

But is this a myth? And is that good advice for business owners?

People who've seen a lot of deals, both buyers and sellers, will tell you that..

This logic is like saying “If you build it, they will come”.

By analogy, imagine running the sales team at your company where you never approach any prospects with any outbound sales, don't do any marketing to increase brand awareness, don't do any PR and so forth. Just hope they come to you.

It does happen. But it's not good advice to just wait and hope.

The vast majority of exits come from two routes, often both in parallel. They are:

Existing Relationships

Approaches tend to come to you from companies where you have an existing relationship with some of the people there.

Investing in these relationships is M&A gold. When a potential buyer has known you for some time, there are huge benefits...

They will understand the business, which makes it easier for them to see the value and pay more. They can be more targeted in the diligence process, saving time and money.

They trust you personally, so they're more inclined to believe your forecasts (and pay more). Maybe they just like you, and want to work with you. That's a great motivator to getting a deal done.

You understand their strategy, so you can frame the deal more precisely. And you know more people there to help you navigate the deal.

And at some point in the course of your relationship, they will tell you that they'd like to make you an offer, or you can raise the possibility with them.

Here's a deep dive: How to build relationships with potential buyers.

Outreach to buyers

You can also run a structured outbound process, where you go proactively looking for buyers, tell them you're for sale, and pitch them on buying you.

That's often with an M&A advisor, but not always.

There's no long-standing relationship, you're contacting them cold when you're ready to sell.

We've written a deep dive on this, called: A 7-step plan to finding buyers for your business.

Closing thoughts

You tend to find your buyer through both of these channels, in parallel.

You should be building relationships, and then when you're ready to sell you can supplement that with a great outreach process to find more potential buyers. You'll then have a competitive process, with multiple bidders competing with each other to get the deal.

Finally, there's one nugget of truth in the line "The best companies are bought, not sold". You do need to focus on building the business, as your main priority. The best relationships or outreach process will be for nothing if your business doesn't have the underlying traits to make someone want to buy it.