Choosing Buyers for your Shortlist

Steps to Selling your Business Part 29.

Last week we discussed how we continue the process of cutting the list of potential buyers.

In terms of a shortlist, there isn’t a precise target, quota, or arbitrary goal, for example naming a top three or reducing your pool of candidates by half.

Remember, you will be making decisions in the middle of changing conditions.

It’s possible, I suppose, that you may get to the end of the Management Visits, magically know the name of your one buyer and exclude the rest, but it’s more likely that you will have some work to do with the new information you have at hand.

Your Advisors will call each prospective buyer before the LOI deadline to ensure their questions are answered. Some prospects will bow out after the meetings, while others submit a formal Letter of Intent (LOI).

Savvy M&A Advisors will help you use specific criteria to make the best decision as to who should make your shortlist for consideration.

As you reassess the list of prospects, you should use four specific criteria to weigh every candidate before proceeding with them. Apply these criteria properly, and however many prospects there are, you can be confident they are there because they belong.

Key criteria:

1. Certainty of Closing

2. Valuation

3. Deal Structure

4. Chemistry

The first is highly critical so I will spend the rest of this post discussing it and will cover the other three in my next post.

Certainty of closing is the most important factor to consider, bar none.

How sure are we that buyer X will close the deal if we move forward with them? It is easy for business owners to waste time and money pursuing a candidate that will ultimately prove to be a dead end.

It is an easy trap to fall into—a great valuation on paper is highly attractive. A structure that offers the most benefit for the least effort will turn anyone’s head; and no one is immune to the lure of an expert pitch. However, such a pitch is meaningless if it comes from someone who will not see the deal through to the finish line.

Your resources, time, and energy are finite—why waste a minute of them on a pantomime deal that will go nowhere?

You need an experienced Advisor to guide you through this. We have learned both clear and subtle signs that reveal if a counterparty has the staying power, or not. And if they don’t have that, no matter how pretty the proposition, they must be cut.

At Stillwater, we don’t deal in longshots. I consider it an unwise use of our time. I don’t think you should deal in longshots either.

The question at the heart of the matter is: will this buyer make it to the finish line?

The answer to that is the basis for your first set of cuts. You may have a few more to make, but you’ve made a great start. In our next post, I’ll discuss the rest of our criteria.

If you are planning to divest your business or have questions for one of our Advisors, please contact our team today.

←Blog 28 Blog 30 →

Written by: Douglas Nix