There are more strong buyers than good companies for sale, so the market is strong. If your company is performing well, you’re probably getting calls from strategic buyers or private equity firms “acquiring companies in your industry.”
That might be the call you’ve been waiting for – but be careful!
It’s easy to leave money on the table or make mistakes that will kill the deal before it closes. Here are three common mistakes and the best way to avoid them.
- Mistake #1: Letting the buyer control the process. Most business owners only sell once, but strategic buyers and private equity firms are experts at buying companies. If you don’t control the process, the buyer will – and you’ll be left wondering what they will do next and when they are going to do it.
- Mistake #2: Under-educating the buyer before you receive an offer. It’s easy to share good news and a few financial statements to prove it. But the buyer will eventually learn everything about your company, and if you don’t share enough up-front, the buyer will almost certainly find something they could use to re-negotiate the deal once you’re down the path.
- Mistake #3: Missing leverage that would improve the deal – perhaps by 20-30%. The first buyer to contact you is rarely the one willing to pay the most. And even if they are, the only way to improve the price, terms, and tax treatment is the legitimate threat of other buyers. You don’t necessarily have to “shop the company,” but you’ll never get the best deal from a buyer who knows they are your only option.
Thankfully, there is one step that virtually eliminates all three of these mistakes. It involves preparing a written package, frequently called an Information Memorandum or Offering Memorandum, that describes everything the buyer needs to know about your company. It puts you in control of the process, improves the likelihood of closing by minimizing the potential for renegotiation, and gives you real leverage that will make the deal more attractive for you.
So, if a prospective buyer has contacted you and you’d like to learn about preparing an Offering Memorandum, we would gladly give you some free advice over the phone. Please reach out to us.