How to handle an approach from a buyer – ‘Bid-defence’

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By Bruce Ramsay, Managing Director, Business Development, Equiteq

It is quite common for successful consulting firms to be approached by prospective buyers. In fact, our data suggests that a third of the deals we process come about from buyers approaching the client.

During a recent webinar, Equiteq Managing Director Bruce Ramsay answered questions from attendees on the subject of how to handle an approach from a buyer and what to do to maximize the opportunity from such an approach.

1. Will my business be worth more if a buyer approaches me, instead of going to market?

Your business could potentially be worth more if a buyer approaches you, as an incoming enquiry is an indication of proactive interest.

However, it is important to gauge the credibility of an unsolicited approach as soon as possible, as many are just ‘kicking the tyres’ and seeing if they can acquire an asset at a knock-down price. Understanding the buyer’s intention early on will help you understand whether this is an endeavor worth following up with or not.

Here’s what to expect from consulting firm buyers.

2. Isn’t the value of my business just 1x revenue?

Indeed, the average value of a consulting company is around 1x revenue.

However, this is merely an average, which covers a considerable range depending on the quality and acquirer desirability of the company. A quarter of businesses are worth over 1.5x revenue, and a lot more are valued at substantially less than the average.

So, valuing the business at 1x revenue will either massively overvalue it, or, naively, undersell it – we’d advise against using such a simplistic approach.  Bring in the experts to help determine what your organization is realistically worth.

3. What is the main reason for a deal failing?

There is no single reason, but one of the biggest deal killers is a lack of momentum.

There’s an industry phrase that ‘one buyer is no buyer’. Selling a business is often a long, turbulent process, and when you are working with a single buyer, a lack of competitive tension could see the deal tail off.

On the other hand, working with multiple buyers supports a competitive structure, which can hasten the selling process and drive valuation.

While we’ve worked on numerous deals involving a single buyer, in all of the cases, we’ve had to work even harder to maintain momentum. Otherwise, it would simply have not gone ahead.

Click here for more reasons why the sale of a consulting firm can fail.

To sign up to listen to a recording of this webinar, please click here. To view other webinars from Equiteq, please click here.

If you are preparing to sell your consulting firm and would like to discuss your plans, please get in touch.

Are you a member of Equiteq Edge? It’s full of content to help consulting firm owners prepare for sale and sell their business. Register here to gain full access.

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