So you have had an approach and are in the enviable position of having an offer for the business that is acceptable to you. You are now saying to yourself “if one person will offer me £XX million pounds then there may be more and if so they may offer more.” This could be true, or not. It may be that you are talking to the absolute best (or only) acquirer for a business like yours, or you may be talking to one of many and yours is the lowest offer of all of those buyers. In my experience and quoting my mentor Barrie Pearson “if you approach a shortlist of purchasers for any business the highest offer is likely to be 50% more that the lowest and in a significant minority of cases the it will be 100% more.” So the million dollar (or maybe $100m) question is how do you find out?
Well, lets look at the risks and rewards of your current situation. If you have an offer that is acceptable to you or even exciting to you then you may well be quite scared of losing that offer as a result of the time spent exploring the market. You may also be concerned about the confidentiality of going to other parties and your staff, customers and suppliers finding out about it. This is a very valid concern. On the other hand you may be concerned that you will, by not “casting the net”, sell at an undervalue and live to regret that. You may not have considered this but it is also more likely that a transaction will fall over with only one buyer than with a number.
An abortive transaction is immeasurably costly in terms of not just fees, but distraction and time. It is also quite common that a single buyer will increase their price when introduced to competition, however, they may also walk away. Now that is all as clear as mud, so let me clarify it. You need to decide, 1). Should you sell or not at all? 2). Should you open up the process, or should you sell straight away to the initial buyer? To answer these questions you first need to answer the following.
a) Is the price high enough for you or is it likely to move to a price that is high enough?
b) Is there in fact appetite from other purchasers for your business and if so how strong is that appetite?
I think you can see that these two questions are linked. If there is high appetite from a number of purchasers then it is likely that the price can be significantly increased and that going to additional purchasers will be the best route. If there is low appetite then the opposite is true and you have to decide if you want to sell at the price that is in front of you today. SO HOW DO I ASSESS POTENTIAL PURCHASER APPETITE? Well the simple answer to that question is a properly focused and professional potential purchaser research exercise. This exercise would need to take into account international purchasers as well as domestic and the potential for a financial purchaser (a management buyout or Institutional buyout). There are only 4 companies in the UK that have the genuine international spread, research resource and methodology to perform a proper exercise like this on a confidential and thorough basis. If you would like to learn more about potential purchaser research see my blog Selling my business – How do I do potential purchaser research/how do I find the buyers for my business? Which will be published on Monday 7th May. Sign up here to receive a copy today.
If you would like I can introduce you to all 4 of the companies that do this type of quality research and you can assess what each one of them say. It is very likely that they will have a meeting with you at no cost or obligation in the first instance and it may be time well spent. Once you have completed your potential purchaser research on a confidential basis you will understand exactly what purchasers are keenly interested in a business like yours and how interested they are. Yes it is possible to do this confidentially and without giving away any details of your business. If anyone mentions “anonymous one pagers” to you as part of their research process then run like the wind in the opposite direction. They have no idea what anonymous research, or a covert auction, is about and are planning to tell everyone you are for sale. I have yet to receive an “anonymous one pager” that passes the 5 minute Google test!
So armed with the results of your research you will be able to decide whether to open the process. You will also have worked with a boutique and will be able to decide whether to let them help you with the next stage of running the process. For more information on running a process see video tutorials at the link below, on the process of selling a business and all other aspects of selling a business. (By Sarah-Jane Harvey)