Why unsolicited inquiries rarely result in a closed deal and why a competitive bid process gives you negotiating power when it’s time to sell.
Does this Inquiry Sound Familiar…..
“Hello Mr. Jones, are you the owner of XYZ company?
My name is Bill Smith, and I’m an associate here at ABC Capital Partners. We are currently pursuing an investment philosophy where opportunities in the [fill in the blank] industry and your company came to the top of the list. We are all-cash buyers and pay above-market multiples. We also would want to retain your key employees. Are you currently considering a sale of your business, and would you be willing to consider an offer if we decided to move forward?….”
After investing countless hours in conference calls and preparing documents, you likely hear, “Mr. Jones, Bill Smith of ABC Capital Partners. I have some unfortunate news for you. After reviewing your company and looking at our other opportunities, we’ve decided to withdraw our interest in your company. You have a very impressive company, but our management team has changed direction and has decided to pursue other opportunities. Thank you again for providing your detailed financial information over the past three months and speaking with us on countless calls.”
You sit at your desk, looking at the bill from your accountant, and wonder what just happened?
It’s a Numbers Game with Unsolicited Offers
Professional business buyers like private equity firms, family offices, and corporate development offices are in the business of buying companies. They buy a few each year and look at hundreds of potential opportunities. Each analyst will personally go through at least 3-to 4 companies per week. They can analyze the financial results, spot an acquisition opportunity, and have the capital to close deals quickly.
But from a seller’s perspective, it can be less than ideal. The initial telephone call is flattering. The caller says all the right things. Even their list of questions indicates extensive knowledge of your industry. The purchase price seems fair, the deal terms appear reasonable, and the potential acquirer is undoubtedly articulate. This isn’t a regular tire kicker; this appears to be a qualified prospective buyer. You start to get excited about a life-changing opportunity. The initial talk of the sales price seems like a decent number, and you begin to imagine what life will be like with a fattened bank account and without the stress and headaches of having to run a business every day.
Confidentiality and Due Diligence Level Information Requests Become Expensive
To keep the potential sale secret from your staff, you assemble a deal team of outside advisors like an accountant and business attorney. Documents are requested, billable hours add up, and numerous phone calls are scheduled and attended. Your emails are promptly returned with more inquiries for information or clarification of the information already provided.
Then the opportunity goes dark. Your contact says your ‘package’ has been forwarded to the management committee for review and sign-off. A few weeks later, you learn that some adjustments are needed to the cash portion of the offer, and the potential buyer now needs to see additional materials.
You reengage your accountant to produce the extra material; your landlord now learns you are considering a sale because you’re asking about the ability to transfer the office lease, and onward goes the process. You wait for the approved purchase agreements to arrive.
Eventually, unless you are one of the 2 out of 300 companies reviewed, you get “We decided to explore other opportunities and terminate our interest. Thank you for your time. Best of luck to you and your company.”
You sit at your desk, thinking about how this unsolicited inquiry has distracted you from running your business for 6-8 weeks. How this professional business buyer has cost you $10,000 worth of accounting and legal bills, you begin to realize your chances of actually closing the deal was something like 2 out of 300. These are terrible odds!
Buyers Want a Proprietary Deal. Sellers Want Competitive Offers
And then it strikes you why business owners who are serious sellers engage an experienced advisor to help prepare the marketing materials and create the scale of outreach necessary to attract the hundreds of potential buyers needed to get a deal closed.
If you’re ready to sell and need help to prepare the necessary marketing materials and reach out to potential buyers, give me a call. I’ll help you with a business valuation, put together an impressive Information Memorandum and reach out to my extensive network of active business buyers. You’ll receive multiple offers, and we’ll work together on the deal terms until the final documents are signed, and the money has been wired into your account. As a licensed business broker, I’ll work with your existing accountant and attorney to get the deal closed. This is what I do for my clients.