This blog focuses on how you can dramatically improve your odds of selling successfully, to the best buyer, with the best deal.
When selling to trade buyers, there are two main ways owners end up in a company sale process situation:
The market comes to you – This is where a buyer makes an uninvited approach to you about selling, you are attracted to the idea and pursue a single buyer process.
You go to market – This is where you’ve decided that the time is right and you want to launch a formal process to ‘go to market’ and find the ideal buyer.
To a layman, the first scenario has many attractions and the latter has some risks. However Equiteq recommends that you proceed with a single buyer process only in exceptional circumstances. There are three reasons why going to market should better serve your interests and reduce your risks.
1. Buyer demand is wide and increasing
Don’t limit your ambition and increase your risk with one buyer, when there is a large universe of potential buyers across the globe and their demand for acquisition is increasing.
Equiteq tracks all of the deals that happen in the consulting and professional services sector, from engineering to media consultancies. In the last 5 years nearly 6,500 buyers have acquired just over 10,000 firms, practices, or agencies. The pool of interested parties for your company will be diversely spread across different acquisition drivers and interests.
Economic and commercial globalization, plus technology convergence, is driving the need for larger firms to maintain growth by attracting and servicing an increasingly multi-national client base.
2. Your objectives when selling will be better satisfied
For most owners, maximizing financial proceeds is a primary outcome objective, but often different shareholders have varying financial concerns. If you have been approached by a buyer that unequivocally satisfies everything you dreamed of as a new home for your firm, all shareholders can be satisfied and price/deal structure is not your dominant need, then this may be a reason to seriously engage on a deal process with them as your preferred bidder. However, all of your eggs are in one basket and if the buyer pulls out for any reason, the deal is dead.
The most significant gain in going to market to attract multiple bidders is deal leverage and choice of home. Typically, going to market would include a filtering process on the 30 to 80 buyers approached, yielding 4 to 10 good quality bidders. This is the stage where leverage is at its maximum before ‘going exclusive’ with your preferred buyer, under a Letter of Intent with Heads of Terms agreed.
3. Transaction completion is significantly more likely
Notwithstanding the loss of choice on the ideal home and lack of leverage to get the best deal, there are two risks associated with a single buyer process – the elapsed time to close and closure probability, where these factors are mutually inclusive.
In the real world, from start to finish, a deal without any complications will take about 6 months. The risk for you is that the longer it takes, the more opportunity there is for something outside of your control to occur that causes you or the buyer to withdraw. Unfortunately, there is usually more at stake for you than your buyer, so in a single buyer process he can easily drag his feet, because the only significant leverage you have is to pull out.
If you have multiple bidders in place before exclusivity, you have a large amount of control over the selection of the hungriest buyer, the milestones he needs to satisfy while under exclusivity, and the terms under which the price is defended or improved while in due diligence.
You can read the full article that this blog is based on here.
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