The Complete Buyers Guide to Selling a Business: Exploring the Sales Process

Selling a business is a long and complex process. You may be ready to sell this year or just curious into what it will take to sell – this series will help. The business sale process can be broken down into core stages – from who you need to hire, to what questions you should be prepared to answer, to how to hand off your company once you’ve signed on the dotted line.

Once you have researched and built the Buyer List, a key decision is to determine how many buyers you will approach and whether you will employ a sequenced or parallel process.
There are three general techniques:

1. Serial Approach/Negotiated Sale: You identify and contact the most logical potential buyer(s). You approach one buyer at a time and negotiate exclusively with that buyer. If unsuccessful, you approach the next party and continue to work your way down your list until you find a buyer
2. Targeted Auction: With this process, you discretely contact a limited number of potential buyers. Typically, you will approach between 5 and 20 buyers, solicit indications of interest, and then negotiate with the most appropriate and interested buyers.
3. Full Auction: You identify and contact a broad universe of potential buyers. Strategic buyers will include firms that are your competitors, suppliers, and customers. It will also include “creative” strategic buyers that are not currently operating in your industry. In terms of financial buyers, you will go out to a sizable number of investment firms and executive with the financial wherewithal to buy your company.

Each approach has its strengths and weaknesses. The strengths of the “Serial Approach/Negotiated Sale” or “Targeted Auction” include reducing disruption to your business and limiting the chances of confidential information leaking out.

However, we have seen that those sellers who initially identify and approach a more thorough universe of qualified buyers are more likely to have a successful sale process. While certain circumstances can uniquely call for the limited approaches, they are very risky for business owners. The reality is that there are a tremendous number of considerations that a buyer is making when deciding whether or not to make an offer for your business. Many of these considerations can have nothing to do with your actual business. For example, perhaps you approach the ideal financial buyer only to realize that they are raising capital for their next fund and cannot get the deal done, or you approach the perfect strategic buyer, but there CEO is focused elsewhere or still integrating a recent transaction.

What is the right number of buyers on your list?  It depends on your situation. Usually, it’s wise to err on the side of too many buyers versus too few. In the end, it is not about knowing the perfect buyer when the process begins. It is about finding the right party that will structure a transaction to fit your particular needs and ensure your business is positioned to thrive in its next phase.

Qualifications of Potential Buyers

Some people the express interest in your business will be tire-kickers, i.e., firms that are not qualified to purchase the company. A good broker will know the right questions and have enough market intelligence and expertise to smoke these buyers out and pre-qualify the right potential acquirers before the tire-kickers impact the CEO or Management Team’s attention. This isn’t a particularly complex or time-intensive step, but if it isn’t done, the CEO will waste a lot of time and effort speaking to unqualified buyers and increasing the confidentiality risk of the entire process.

On method to stave off tire-kickers is building a list of qualifying questions to ask interested buyers. The questions allow you to ensure that conversations are focused on productive. If initial meetings are unsubstantive and the buyer seems half-hearted in their intent, chances are they may be a tire-kicker. In addition to questions lists, documents such as in-depth financials, marketing materials and overall business metrics allow you to quickly determine the strength of a buyers’ interest level and weed out unqualified acquirers.