The world of M&A is complex, and moves quickly. This makes it difficult for owners to predict what comes next. It also means that when a buyer knocks, you need to be prepared to answer quickly. As a result, many owners fail to properly vet buyers. They then end up with a deal that stagnates, a buyer who backs out, or funding issues that tank the deal. So it’s important not to rush through the process of pre-screening a buyer, no matter how pushy a buyer gets. A great business broker can do this for you, and in so doing, reduces a lot of the time and effort involved in M&A. Here are some factors you’ll need to look at.
Is the buyer a competitor?
Many owners sell to a competitor. Someone else working in the industry is often uniquely qualified to take the helm. Moreover, working with a competitor can help the two businesses realize beneficial synergies that help both thrive. But when a competitor shows interest in your company, you’ll need to be careful not to tip your hand too early in the process, lest you give away trade secrets to a window shopper. Your business broker can help you craft a nondisclosure agreement that protects both parties.
Have they bought other businesses?
Every buyer has a first business, but it’s often that first business that suffers from their mistakes. So it’s wise to choose a buyer who has experience running other companies, especially if you have multiple offers.
What is their reputation?
Selling to PE firms is increasingly popular, and can be a great way to ensure that your business continues growing and evolving in your absence. Not all PE firms do a great job running the companies they sell, though. Before going into business with a private equity firm, consider their reputation. Do they extract as much money as they can from a company before running it into the ground? Or do they streamline operations and grow businesses into something better than they were before? The right business broker can help you consider whether or not to sell your company to a PE firm.
Can they get funding?
It doesn’t matter how promising a buyer seems. If they don’t have cash in hand, or can’t get funding to close the deal, it’s a losing proposition. Work with a business broker to assess the funding prospects of a would-be buyer before you enter into an exclusivity agreement. Otherwise you’ll lose time—and with it, money.
Are they qualified to run the business?
If you care about what happens to your company and your employees, it’s not enough to ensure a buyer can afford to purchase your company. You also need to assess whether they have the acumen necessary to oversee your business. Ask them for references, especially if they have purchased a company before. And if this is their first business, you may want to ask for a business plan, or even consider staying on for a while to ensure the new owner does right by your company and team.
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