It’s often said in the M&A business that “one buyer is no buyer,” but many times when we engage with a seller client, the one, ideal buyer comes along. And that can be a very good thing, particularly if the business is very specialized and requires a certain type of buyer, if it is in a less-than-desirable industry, or if the selling market is soft. In those situations, we work with that one buyer to get the best possible price and terms for our seller client. We have many of those success stories with very happy buyers and sellers.
However, the ideal situation is when we’re able to generate interest among more than one buyer at a time. When we’re able to engage multiple buyers and create competition for the business, we can obtain the best possible price with better terms and fewer contingencies. We may be able to reduce or eliminate seller financing, reduce tax consequences, and/or minimize risks in the purchase contract with indemnifications, representations and warranties, hold-backs, etc. These competitive situations also allow the seller to consider other criteria and pick who they think is the best buyer.
This process gives the seller greater leverage, but it also makes the process much more complex. The more buyers that are involved, the more complicated the negotiations can become. Your M&A advisor will manage all offers in a confidential manner and speed up or slow down the process while negotiating with all parties. And dealing with more than one buyer limits exposure to the risk of a single buyer backing out or losing funding.
It takes skill to manage more than one buyer, but if done well, sellers can create a bidding war. Multiple buyers never present identical offers, so it’s impossible to compare apples to apples. Your advisor will present offers to you in the best possible way for you to evaluate, taking into consideration price, terms and many other factors, such as an assessment of the likelihood of closing, each buyer’s timetable and the buyers’ motivations. Once you have a favorable offer, your advisor can ask all parties to submit their best offer and begin the counter-offer process.
You’ll want to weigh in with your own assessment of the chemistry between you and each buyer. Whether you continue to work in the business or move on to other ventures, chances are you put a lot of blood, sweat and tears into the business and want to see it continue to succeed for the employees, customers and your legacy, so intangible considerations are also very important.
With honest and direct communication between all parties, everyone will leave feeling like they were treated fairly, leaving the door open for your advisor to go back to one of the bidders if the sale doesn’t proceed with the seller’s first choice.
For advice or more information about our confidential process, contact O&O at 913.648.0185 or [email protected]