Selling your business: how to filter serious buyers from speculators
At a glance
- Finding the right buyer for your business can be tricky, and it’s important to know how to filter the credible prospects from those playing a numbers game.
- To help you identify a serious buyer, you can ask questions such as: “Is the initial communication personalised?” and “Do they have good web presence?”
- Third-party firms can support you in identifying legitimate buyers and advise on how to engage with them.
Finding a buyer for your business is a lot like dating. Approaches from potential acquirers are sure to get your attention. They can excite. But they can be a huge distraction too. So, if you’re thinking of selling, it’s crucial to filter serious, credible buyers from those who are simply playing a numbers game.
If the other side’s approach is to contact multiple potential sellers quickly in the hope of getting lucky, that could end up wasting lots of your time and energy.
If an acquisition goes wrong due to lack of expertise or commitment from the other side, the experience could hold you back from finding a more suitable buyer in the future.
How do you know if a buyer is serious?
The timing of an approach from a potential acquirer – be it a broker, adviser or the firm itself – may seem uncanny to you if you’re looking to sell. But the other party could be contacting many other firms regularly. There’s nothing intrinsically wrong with a mass-activity strategy; they’re just doing what works for them. But engaging with this type of buyer can create difficulties for the seller, according to experts in this field.
Andrew Shepperd, co-founder of consultancy Entrepreneurs Hub, says: “Most business owners will have received approaches by email, post and phone. Some have even told us they get two or three per week. But our experience is that acquirers using a mass-approach strategy may offer less attractive terms and may not fully recognise your business’s value.”
They could be making significant numbers of unresearched and unqualified approaches – meaning they know little about your firm when they contact you and haven’t spent much time, if any, working out whether you and the buyer are a good match.
In such cases, “What appeared to be a great opportunity can disappear as quickly as it came,” says Andrew. “But only after lots of work and distraction for you, the business owner.”
So, how do you sort serious buyers from speculators? Here are seven tell-tale signs to watch for and techniques that could help.
1. Is the initial communication personalised?
Or is it merely addressed to “the business owner” or “the director”? It’s easy to find a director’s name, so such approaches have had little time spent on them and are almost certainly from mass mailers.
2. Can you spot template-letter phrases?
You may have seen similar wording in other approaches. Examples include, “I apologise for contacting you out of the blue,” and “We are looking at acquisitions specifically in your sector,” but without mentioning which sector. A serious approach will likely be more personal and specific about your business.
3. Is the person approaching from a limited company?
If they are individuals, you should question whether they have adequate resources to support a serious offer. Larger, experienced businesses provide more reassurance.
4. Do they have little or no web presence?
A serious acquirer should at least have a website. If not, again, it suggests they may not have the resources to make a serious offer. Sites such as LinkedIn are great research tools and should give an idea of who the approaching company is and their experience.
5. Are they intermediaries claiming to represent interested buyers?
Treat this approach with extreme caution. Andrew warns: “It could just be a way of getting you into their pipeline of prospects, only a small percentage of which tend to complete.” Ask lots of questions, such as who are the buyers and what is their specific interest in your business? If the intermediaries are representing a named firm interested in your SME, they should have written evidence of that, so ask for it. If you agree to an exploratory call or meeting, the buyer should be present.
6. Have you done your research?
Check the backgrounds of the intermediary and prospective buyer. Try to verify everything they say through online research – for example, with Companies House, their own website, LinkedIn and other resources. If it stacks up, explore it further.
7. Get professional advice.
A business adviser with good experience of acquisitions can help you filter out less serious buyers more quickly. For instance, they could explain what you will be asked and how to answer those questions; they could set up a non-disclosure agreement and explain what you can reasonably avoid disclosing; they could help agree timescales and terms of engagement; and they could help you manage valuation and other financial aspects, negotiations and later stages of the process.
Spotting the right buyers
“The dream scenario is a professional and personal communication from an executive at a credible organisation with a record of successful acquisitions in your sector,” says Andrew. “You might even be familiar with some of the deals they’ve done. Unfortunately, only a small minority of approaches meet these criteria. If you get a serious, sincere approach like that, treat it like an uncut gem.”
Andrew says that, surprisingly, around 25% of the deals his firm advise on start with an unsolicited approach. They could be worth pursuing if many of the above criteria are met, so don’t dismiss them immediately. But do tread warily, as time wasted on failed acquisitions can be frustrating, demoralising and have serious consequences if it takes your focus away from your business.
Bear in mind that early negotiations can be sensitive discussions for both parties, so be tolerant, polite and respectful, but do be cautious.
Thinking about selling your business? Get touch with us to discuss your financial goals beyond your company, and how to approach your exit in order to make them a reality.
*Exit Strategies may include the referral to a service that is separate and distinct to those offered by St. James’s Place.
SJP Approved 08/03/2024