In my work with owners who are selling their business, I have encountered two types of buyers in most situations. One type of buyer is out “beating the weeds” to find a company that they can buy for “nothing down and a dollar a day.” It goes without saying that you want to avoid these. Still, about five out of ten unsolicited strategic buyers may be qualified and have a real need or desire to make the acquisition. Since these buyers are motivated by a genuine need that they want to fulfill quickly, they usually will not wait around for long.
I have learned to be skeptical of the many brokers and investment bankers out there who say they are representing a buyer “who is interested in your business.” Most of these people are hunting for sell-side assignments and, in the end, are not representing a bona fide buyer. I also discount most private equity groups that are trying to initiate deals and are solely focused on low-multiple opportunities.
Don’t be discouraged, however. If you want to sell your business, it is relatively easy to weed out the unsolicited buyers that will waste your time. By qualifying their financial capability and identifying the strategic reasons they are contacting you, you will soon be able to differentiate between the two types.
First, ask the buyer why they are interested in purchasing your business. If they can show that they know exactly what your business does, that is a start. If they give you a clear strategic reason why they are interested in buying your business, then there is a good chance that this buyer is bona fide. Ask these questions up front, as soon as you can. It is better to get this topic out on the table at the beginning of the sale discussion, instead of investing your time and money in a conversation that will eventually go nowhere.
So why do so many people end up having a bad experience with unsolicited buyers? In cases where there is a bona fide buyer, if the deal goes sour, I find it is usually the seller’s fault. This can happen when sellers are not prepared to sell their business or attempt to represent themselves in the sale. Particularly when they have little or no experience negotiating these types of transactions.
A bona fide buyer for your business can definitely mean money in the bank; be sure you don’t let the “big fish” get away just because you are not prepared. Start planning your Exit, today.
