Improving Your Options and Your Odds – Part Three of Three

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signingIn Parts One (See Link to Part One) and Two (See Link to Part Two) of this blog series, we explored the importance to the business owner of maximizing both the quantity and quality of the buyer pool for their business.  Below is a real life example of how implementation of these concepts culminated into a successful transaction.

We recently sold a manufacturing company that catered to a very niche market.  The company had a number of very positive attributes, including a tremendous growth trend and limited competition.  However, the majority of the company’s revenue was produced by three main customers.  Most business buyers would deem this to be too risky.  If the seller had required us to identify a buyer before providing us with critical information, odds are that the one buyer would not have proceeded once the customer concentration was revealed, leaving the seller frustrated that we were unable to present him with an offer from the buyer but also unaware that his expectations were nearly impossible for us to meet.

Fortunately, the seller provided us full access to information and engaged us to take the business to market.  We wrote a “blind teaser” that did not include the name of the business or other confidential information, but provided basic high-level financial information and highlighted the business’s positive attributes, its challenges, and the seller’s preferred exit strategy.  This was distributed to a large network of potential buyers, which quickly led to further inquiries from a number of buyers who found the business to be attractive, warts and all, because it was synergistic with their other business interests.

After signing appropriate non-disclosures, interested buyers received additional information and entered into discussions with the seller.  Within a month of putting the business on the market, the seller had selected his buyer from the six parties who submitted offers.  The terms of the accepted offer were very much in line with the seller’s preferred exit strategy and expectations, and due diligence proceeded fairly seamlessly, since the challenges had been disclosed up front.  The transaction closed approximately two months after the offer had been accepted.

What’s the moral of the story?  To optimize the best price and deal terms for your business, don’t limit your options to one buyer.  Rather, provide full information on both the attributes and challenges of your business.  Then let your Apex Business Advisor market the business in a manner that will create a buyer pool of the best and most motivated buyers for your business.

Anita Lieser
Senior Advisor

Improving Your Options and Your Odds – Part Two of Three

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2of3In Part One (See Link to Part One), we discussed the impact on price, terms, and expediency of having multiple buyers simultaneously interested in a business.  Dissemination of information about the business to potential buyers was mentioned as part of the process to entice the largest quantity buyers.  But this information isn’t intended to only produce the most buyers.  Its purpose is also to bring forward the best buyers.

Disclosing information up front to improve the quality of buyers and of offers

In the real estate scenario presented in Part One, one could hardly expect a home buyer to submit an offer on a house without knowledge of some key pieces of information such as location, the number of bed and bathrooms, or the seller’s price expectations.  However, we could provide countless examples of business owners who tell us that they would like to sell their business, but who want us to present them with a buyer before they provide relevant information about the business.

Lack of information significantly handicaps our ability to match the business to the buyers for whom the business would be the best fit.  Though the business website might give some indication of what the company does, it is nearly impossible to determine which buyers might find it most attractive without details about the business operations, financial history, and anticipated price.  It is extremely difficult to get a buyer to spend time and effort considering a transaction, much less making an offer on one, when they have no idea whether the business meets any of their needs and criteria and when the business owner’s motivation might be perceived as questionable.  And if forced to make an offer prior to knowing these details, the buyer’s offer is likely to be lower to accommodate for the unknown and is very likely to be modified or withdrawn as details are disclosed during due diligence.

In order for an Apex Business Advisor to bring forward the best buyers for a business, the Advisor must gain significant insight into many aspects of the business.  This allows the Advisor to present the business to potential buyers in a way that best highlights its attributes and puts its challenges into perspective.  Buyers are then able to make a much more informed decision about whether the business matches their business-buying requirements.

A buyer’s conclusion that a business is a good fit for them can positively impact the buyer’s offer price, excitement, motivation, and sense of urgency.  An informed buyer’s offer also stands a much greater probability of surviving the due diligence process, as the opportunity for the buyer to uncover “surprises” has been significantly diminished.  Now that we’ve defined the importance to the business owner of maximizing both the quantity and quality of the buyer pool and strategies for accomplishing this, in Part 3, we’ll discuss a real life example of how this resulted in a transaction that was beneficial to both the buyer and the seller.

Contact Apex Business Advisors for more information on our procedures for identifying the best buyers for your business.

Anita Lieser
Senior Advisor

Improving Your Options and Your Odds – Part One of Three

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1 of 3“Hi Joanne. This is Denise. I understand that you might be interested in selling your home. I can help you with that,” said the Realtor when the homeowner answered the phone.

“Great! I am interested in selling,” Joanne replied. However, when Denise began to ask for more information, such as the price, address, square footage, and number of bedrooms, Joanne quickly cut her off. “I don’t want to put it on the market, but if you have a serious buyer, I’ll give you my address and more details about the house once you bring me an offer,” she said.

Denise quickly realized that Joanne had created challenges that would likely mean that she would not receive the highest price and best terms for her house. These included:

1.    Limiting the quantity in the buyer pool
2.    Expecting offers prior to disclosing information

At Apex, it is not unusual for us to have a similar conversation with a business owner who communicates a desire to sell but unknowingly creates these same obstacles. Parts One and Two in this series of blogs will address these barriers. Part Three will detail a recent success story that highlights how smoothly the transaction process can and should work when the business owner and their Apex Business Advisor work in tandem towards the same goal.

Expanding the buyer pool to improve the quantity of buyers
Simultaneous interest from multiple parties is critical to obtaining the best price and terms and to moving the transaction forward at the most expedient pace. Business owners who limit brokers to one specific buyer or who only entertain the random buyer or two who approach them directly are undermining the process that would render them the highest price, as this creates no sense of urgency or concern of competition for the buyer.

A business is of the greatest value to buyers for whom it most closely aligns with their buying criteria. Taking a proactive approach by allowing your Apex Business Advisor to concurrently present basic non-confidential information to a vast number of potential buyers can create immediate traffic on the business and a sense of urgency among buyers. The buyers for whom the business is the best fit and who are most motivated will quickly rise to the occasion.

Contact your Apex Business Advisor to further discuss our processes for maximizing the quantity of potential buyers for your business.

Anita Lieser
Senior Advisor

What Happened to my Deal?

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Deal KillerDeals can die for many reasons, but “Time” is the worst reason of all! It’s possible to manage, yet also easy to let Time take control.

Let’s say I have a buyer, Bob, who is taking his time getting due diligence done. He has a process – no problem. However, as he completes his due diligence, it is revealed that he hasn’t proceeded with the bank loan application.

Well, the bank takes their process seriously too. Their loan committee meets every two weeks and the next meeting is in two or three days.  The banker doesn’t see any way to have Bob’s request in time – so he will present at the following loan meeting two weeks out. Remember, Bob is not his only potential client. Now, let’s add to the mix the SBA, a buyer’s attorney, insurance agent, accountant, financial planner to access his 401k, and oh yes, the landlord. The deal can linger for months with very little actually getting done.

All of Bob’s advisors have their existing clients plus other business to handle and he needs to fit into their schedule (and they can’t always jump at his request). After 4 months of following a process and scheduling the time to meet with advisors, the deal is starting to unravel.

The seller interprets the delay as a problem with the buyer. The buyer must be “weak” financially, unable to manage a business, or maybe the buyer isn’t really serious. Although this isn’t an accurate view, this is the seller’s perception. The seller starts to look for other buyers as the negotiations grind to a halt. This is known as “Deal Fatigue”. It happens all the time and it can be easily avoided. Well, not easily. It does take time, work, and effort. But that’s business!

Control Time by showing urgency and impart that urgency upon your advisors and others involved in the deal. Set due dates and follow up. Be a leader of the process. Follow these general steps:

  • First, due diligence and bank loans should be happening at the same time. Meet with several banks – immediately!
  • Second, gather information needed for insurance, licenses, etc. while the loan is in process.
  • Third, when you have positive feedback from your lender, begin to negotiate terms of the buy-sell agreement. The attorneys will document what you have agreed to and will advise on technical points. While you are actively working the process, do you have access to your down payment?

These steps are worked concurrently, not consecutively. By the way, don’t quit your job until you know the deal is going to close!

Stay in close contact with your Apex Business Advisor through the process. Your Advisor can assist with the communication and follow up with banks, attorneys, and the seller. Keeping lines of communication open is critical for getting to the closing table!

Doug Hubler
President