Cashing In!
Douglas Group
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What To Do When Buyers Call
Every
business owner is approached from time to time by would-be buyers who
express interest in courting you for acquisition. The way you
handle those early forays can make a huge difference in the likelihood
of a successful and lucrative sale. Even if you have no interest
in sale today, you can use these early probes to learn much about your
market place, who buyers are, and what elements of value in your
company will create the most sparkle-the most dynamic competition for
your company on the day you decide that it's time to sell.
Screen & Identify the Nature of the Call
First
of all, realize that 75% or more of the approaches you may get from
would-be buyers will in reality be approaches from intermediaries,
seeking to represent buyers who might acquire you. Early stage
discussions can quickly allow you to screen and identify the nature of
the caller. Ask directly in the first conversation:
· Are they an intermediary who represents buyers
· An intermediary wishing to represent you in sale
· Are they a part of an equity fund, or
· Are they a strategic corporate buyer who thinks they
may have interest in your company?
Let's
consider the last two categories of inquirers first. If the
caller is an employee of a potential purchaser, get a pencil, take
notes and ask questions that will help you understand their interest as
possible buyers. Even at these earliest stages, begin the
conversation by:
· Clarifying that you expect the conversation to be
entirely confidential.
· Tell the buyer that you are not currently being held
for sale, but that you always have interest in
being alert to opportunities.
· Tell them you need a bit of background to even
decide whether it's worth taking further.
Then specifically, ask the following:
· Why do they think the company might fit their
acquisition interests.
· If they are a strategic corporate buyer, do they know
what you do, and seek to own that capability?
· If an equity fund is calling, what size acquisitions do
they target?
· What other companies do they own, or have they
owned in the past, that may be similar, and how
have those companies performed for them?
· What percent do they buy, with the acquisitions they
do? (Do they buy 100%, or do they require sellers to
continue to hold a percentage of the company?)
For any buyer, always ask:
· What profitability (pretax profits as a % of sales) do
they think is good?
· What growth rate do they think of as respectable
and desirable? (Then we get to the really
interesting questions!).
· How do they typically price acquisition targets?
Obtain Info on Potential Pricing Models
Most
buyers have a pre-set concept of likely pricing based on a multiple of
pretax cash flow they may pay. A good job of handling this
conversation can elicit a range of possible values they may set.
The best buyers will be proud to tell you that they sometimes pay a
strong multiple - perhaps a 6 - 7 multiple. The ones who
are eager to tell you that they don't pay the most are probably not
likely to be very aggressive in pricing. Half or more will duck
the question entirely. (They don't want to lose your interest by
quoting a conservative pricing model, and yet they are afraid of
quoting you an aggressive model, because it may "cost" them by getting
your expectations too high.) Even if you can't get this last and
most valuable bit of information, you still have gained good
foundational info - and later when you are ready, a hired intermediary
can probably learn more for you, by pre-screening before next stage
conversations. (Buyers will tell an outside intermediary more,
especially when they realize that without such info, they may never
even get to "look".)
Do They Have a Buyer in Mind?
If
the caller says they represent buyers, ask who they are representing in
this call to you. If they won't tell you, they probably don't
have anyone yet in mind. (You do not want these people to go out
casually "shopping" buyers for you. They will be careless about
confidentiality and sloppy in what they tell about your company.)
If they do have a specific buyer, ask why they think this buyer is a
fit. Then, ask the same questions you would have asked of the
buyer directly. If they can answer well, keep their info at hand,
to call them back when you may have interest.
What
about the buyer who does sound like a good fit, and who you think you'd
like to talk with further? Before you tell them almost anything
about your company, have them sign a written confidentiality
agreement.
Bring in a Seller Representative
If
you know of a good seller representative that you like and trust, bring
them in immediately. They can give you important and valuable
help in presenting info attractively, desirably, and correctly to the
buyer from the start. It can greatly increase your chances for
success. You will also have far fewer calls into your place of
business if you have someone offsite to handle next-stage
contacts. Even if you start off by paying a flat hourly rate at
$300 - $500 per hour for this it can be worth millions to you in the
end, with a more handsomely priced acquisition.
Gather strong information and file it for the day that you seriously want to consider sale. It will pay off!
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Learn How To Prepare
Your Business For A
Successful Sale:
click here to register for our Free Webinar.
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Topics Include:
* Owning a Salable Company
vs. "Owning a Job"
* The Selling Process
* Why & When To Sell Your
Business
* Today's Market for Merger
& Acquisition Activity
* How Competition Increases
Selling Price -- Significantly!
* The Family Business -
When to Sell and When to
Pass Along
* The Secret Benefit of the
Intermediary Shield
Click here to request a free copy!
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We've
created this newsletter to share timely and relevant industry expertise
on buying and selling businesses. Here we share stories,
anecdotes, and expertise in the world of business sales; also
known
as mergers and acquisitions. We can also provide other educational
resources such as webinars, audio CDs, industry books, and possible
consultations. We're always eager for and appreciative of
any suggestions or feedback you may have. Thanks for reading. We
would enjoy hearing from you.
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