The myth of the ‘hungry buyer’ is one of the most prevalent and dangerous traps that you can fall into as an inexperienced seller. There is a common belief that the success or failure of a deal rests on how much a buyer wants to acquire your company, as opposed to a forensic analysis of how it will generate future profit streams. This is not always the case and this belief can harm your prospects on making the deal happen.
If sellers focus on the ‘hungry buyer’ myth, they are likely to concentrate too much on getting emotional buy-in. While there is a need to build up momentum and entice the buyer throughout the process, it is more important to develop a clear buyer proposition, based on real evidence, as to why your business is of value to them.
What should the buyer proposition be based on? One of the key elements is that it needs to be tailored to the potential buyers and their needs, at all stages in the process, not just during negotiations. For example, when approaching a pool of say 100 potential buyers with the initial blind profile, or teaser, you can’t expect to generate positive responses across the board if these documents are not tailored to the typical needs of each category of buyers in the pool. You need to understand what their needs are and why they would be interested in a company like yours. This is one of the key roles of an intermediary such as us.
By starting with buyer categories and drilling into specific buyers as the sale process progresses you can develop the ‘story’ of the business in a way which relates to what the buyer wants. You can highlight your strengths and strategy in a way which is most relevant to what the buyer wants and also address any concerns they may have at an early stage. This will help increase the chances of hooking their interest, both emotionally and logically based on a future profit business case, and help them be prepared to pay a premium price when the case is signed off at board level.
The second purpose of a buyer proposition is to build trust and confidence in what you are selling. It is very easy to present an overly rosy picture of how your business is going to perform in the future. However over optimistic forecasting is often revealed at the due diligence stage and can potentially lead to a breakdown in negotiations, or at least a reduction in the equity value.
What’s important in the proposition is to demonstrate hard evidence for the reasons you’ve achieved your historical performance levels. You also need to show that the same methodology has been applied to calibrating the forecasts included in your proposition. In this way, the potential buyer is more likely to believe and accept the forecasts you have produced. You can find out more about how to value your consulting business at Equiteq Edge, our free online resource tool.
While it’s important to put together a compelling package, backing this up with the facts and evidence is key. If you can put this into practice, you will give a potential buyer all the right reasons to invest in your company, which will increase your chances of both doing a deal and achieving the value you believe your business is worth.