When it comes to companies for sale, prospective buyers will usually be looking for something specific - such as a particular skillset or operating within a particular sector. In other words, they will be looking for companies for sale that fit a specific niche. So when it comes to buying a business, it is helpful to buyers to be able to easily see what niche a company fits into.
While some global brands may be able to experiment with diversification and then retreat from any ventures that don’t work out, for most small and medium business owners it makes sense to keep a clear identity and a focused strategy especially if they plan to sell eventually.
But how niche is niche? Is buying a highly specialised niche business always a better investment than buying a more diverse business? In this article we will explore what a buyer Is likely to consider when considering niche companies for sale.
Companies for Sale - Not Niche Enough?
Companies for sale that are too diverse can be a problematic proposition for a potential buyer. Buyers usually have specific requirements in mind, especially if they are buying to add to an existing portfolio. If a company is too diverse there may be aspects of the business that a buyer has no interest in.
For example a buyer may be looking for a packaging company and sees for sale a company which imports, packages and distributes. The buyer may wonder what to do with the import and distribution parts of the business. In this instance the buyer may find it difficult to see where the profit is actually being generated. If the buyer wants one part of the business but not the other parts, this can lead to company breakups, which is probably not what the seller wanted.
On the other hand, if a buyer is looking purely in terms of overall financial performance and the company is doing well, a more diverse company may still be an attractive investment for them.
Companies for Sale - Too Niche?
There are also possible problems with companies for sale being over-specialised. If a company is too dependent on a tiny part of the market this can make them vulnerable if something happens to affect their sector.
For example if a buyer is looking for a recruitment company and finds one for sale that only specialises in the public sector or finance workers, the business could be suddenly affected by government cuts in public spending or fluctuations in the money markets, meaning the demand for recruitment is not so high in those areas. Other recruitment companies with a more diverse portfolio, or in sectors likely to withstand general economic problems such as IT or healthcare are more resilient and less likely to be so badly affected. Another example of a niche recruitment company is in the energy sector where there is always going to be a consistent demand for the product from the consumer making it unlikely to be a target for economic shifts.
Companies for sale in niche recruitment areas often have a strong focus on building ongoing relationships with their candidates. Many people often go back to the recruitment agency at several points throughout their careers and this can be a bonus in investing in such a specialist area.
However recruitment companies who have a broader appeal or are able to diversify into temporary recruitment may be a safer bet than one that is too heavily reliant on a niche market.
The problem of being too niche is compounded if companies for sale have only one or two major clients. Not having a broad enough customer base can make very niche companies for sale look like a vulnerable and risky prospect.
Companies for Sale - Balanced Niche
Buyers will be attracted to companies for sale that are focused on their own product or service but have diversified in ways that don’t threaten that focus. This achieves a balanced niche which is much more attractive as an investment prospect.
One good way to achieve a balanced niche is to have a diverse customer base. Multiple customers of one type (e.g. packaging fruit for many different growers) is better than just one or two customers. Even better is to have multiple customers of different types (e.g. packaging fruit, vegetables and flowers for multiple growers).
Having transferable skills is another way to achieve a balanced niche. Staff that can deal with a range of customer types, even if they mainly spend their time on one account, are a valuable asset as are staff that can multi-task within the organization and have a variety of specialist skills within the business. Buyers will like to see that there is scope for expansion and growth within the business, even if it has not yet been fulfilled.
Equipment can be a major part of many companies for sale, and repurposing machinery to other uses is something that a niche business should be open to in order to grow the business as well as showing the potential of the company to prospective buyers. For example a machine that may have been originally purchased to pack fruit may also be used for packing vegetables or other produce.
Companies for Sale Through Axis
Axis Partnerships specialise in buying and selling niche businesses throughout Suffolk, Essex, London, East Anglia, South East, Norfolk, Cambridgeshire, Home Counties, England, South West, North West, South East, Midlands and West Midlands.
Most of the companies for sale Axis deal with are in popular business sectors such as health care, recruitment, manufacturing and logistics. However Axis also have great experience in niche areas such as IT, precision engineering and specialist manufacturing.
As an experienced business broker Axis is very familiar with what potential buyers are looking for and can help sellers position their companies appropriately to be as attractive as possible in the marketplace.
Ultimately the aim is to match a company for sale that has a level of specialisation to a buyer’s requirements.
