You've Been Approached by a Buyer. Now What?

So, you've been approached by a buyer interested in acquiring your business. Many business owners have had this experience, especially if you operate a sizable 7 or 8-figure business.

If you feel like you've seen more of these inquiries arriving in your email inbox, you're not mistaken. I'm a member of several brokerage and search fund groups (professional buyers) and over the past 12 months there has been a massive focus on "cold email" outreach where buyers attempt to engage business owners via email (and sometime by phone call).

There are thousands of these professional buyers deploying automated email outreach. So, know that most of these messages aren't being sent from a real human, but instead, from a mass email system, sometimes even AI-driven.

There's a critical pivot occurring right now: these professional buyers (who have deep pockets) are looking at Middle Market businesses (7 and 8-figure businesses) because individual investors are having difficulty getting deals done with higher interest rates. Thus, these professionals now have a distinct advantage and are acquiring businesses with increased speed.

Four Groups of Buyers

Let's face it, most business owners are excellent negotiators — it's what has led them to growing a successful business. While it may be attractive to go at it alone and forego working with a broker, I can tell you that these professional buyers are some of the most sophisticated financial experts you will encounter.

Before moving on, let's categorize some of these buyers to make it easier to identify who you might be dealing with:

I. Private Equity

Private Equity buyers are professionals who manage large investment funds on behalf of their investors. Their job is to find and acquire privately held companies to provide a return to their investors. Private Equity Groups (PEGs) are some of the most sophisticated buyers — they have access to enterprise-level market research tools and have teams involved with every purchase.

II. Search Funds

Similar to Private Equity, Search Funds are also comprised of professional investors. The main difference between the two is that Search Funds often don't have investment capital in place at the time they approach a business owner. Instead, their job is to find a business to acquire, report back to their investors, and then secure the capital needed to make the purchase. They also tend to acquire a single business whereas Private Equity acquires multiple businesses.

III. High-Net Worth Individuals

Like the title says, these are people with sizable amounts of capital ($1,000,000+) looking to acquire businesses. They're also one of the groups that is being outbid by Private Equity and Search Funds as of late.

IV. Individual Searchers

This group is the demographic that most business owners typically think about when they get approached. While individuals in this group can be sophisticated in their approach, there are many that are first-time buyers and new to the process.

Ask this Question First When Approached by a Buyer

Before engaging with any buyer, there are several steps you will want to take to protect yourself and your business:

"Which group do you below to?"

Ask which one of these categories the buyer fits into. You may need to push the buyer to ascertain the answer to this question. This will help you determine the level of expertise the party has that you're dealing with.

Research the Entity

Once you've ascertained the identity of the buyer, do your research. Reverse search their email and phone number, review their website, and check their names on LinkedIn to see that they're representing themselves accurately.

Engage the Right Professionals to Protect Your Interests

I tell all of my clients that the first three groups all have the financial and people skills to out-negotiate a high-majority of business owners in their sleep, often without the business owner even realizing that the playing field is severely stacked in favor of the professional buyer.

The three professionals that can help you are: (1) a Business Broker, (2) an attorney, and (3) an Accountant (in this order).

At the very least, start with consulting with your attorney and find a business broker that can steer the conversation through the appropriate steps of engagement.

If you want a full-price offer and favorable terms, I can't stress this step enough - you're likely dealing with the Harvard finance and math whiz which is rarely disclosed up front.

What to Avoid

Let's talk brass-tacks. Here is a short list of what not to do:

• Do NOT sign a buyer's Non-Disclosure Agreement (NDA) without consulting your attorney. The buyer should be signing an NDA that your attorney drafted to protect your interests.
  

• Do NOT share any financial, operations, human resources, or sales and marketing company information. Unfortunately, there are many tire kickers and bad actors looking to reverse engineer your business model.
  

• Do NOT discuss a potential sale price. This point needs to occur much further in the process after the buyer has been thoroughly vetted.

Conclusion

In closing, being approached by any of the groups I mentioned above can be flattering. However, it's crucial for you to understand the buyer type they represent and build your team of professional advisors who can protect your interests. And, I often say, "The first offer is rarely the best offer." Entertaining multiple offers from multiple buyers is the best way to maximize your sale price.

To your success,

Jason Huett Business Broker | CEO

Collaborative Commercial Business Brokers, LLC.

Providing business brokering services to business owners in Madison, WI, southern Wisconsin, and northern Illinois.

PS: If you're been approached by a buyer and want to maximize your sale price and terms, schedule a complementary consultation with us today.