What Does Prospective Buyer List Mean?

A prospective buyer list refers to the list created by investment bankers, mergers and acquisitions advisor or business brokers after they have been engaged by a company's owner to manage the sales process of the business.

In a general sense, a prospective buyer is any potential buying party that could be a fit for the purchase of a company that is being marketed in a sell-side transaction. In the world of M&A, a prospective buyer is one of the buyers that gets put on a prospective buying list.

This buyer has been selected by a business broker, M&A advisor or investment banker that was hired to find a possible buyer for a company. Once the initial list is compiled, the selling agent may choose to reduce, enlarge or otherwise modify this list until a final group of possible prospective buyers has been chosen.

Once the selling company has this list, it will compare the characteristics of each prospective buyer to see how their goals and methods of operation match up with its own. The seller will generally rank the list of prospective buyers according to their degree of desirability to the seller. Once the list has been finalized, the selling agent (i.e., the business broker, M&A advisor or investment banker) will begin to court the prospective buyers by sending each of them a “teaser” about the company.

The main objective is to entice several of these prospective buyers into signing confidentiality agreements so that they can examine the seller more closely. Then, hopefully at least some of them may decide to go ahead and submit a formal expression of interest (EOI) or indicative offer. If the top buyer on the list is not willing to make an offer required by the seller, then the seller will move on to the next prospective buyer on the list.

Selling agents typically compile prospective buyer lists using their own transactional databases and their contacts in the business. They can then use their databases to filter out buyers who have motives and methods that are incompatible with the seller.


Divestopedia Explains Prospective Buyer List

There can be many good quality prospective buyers for a given seller. The selling agent’s job is to foster healthy competition between those buyers in order to get the highest possible price for the seller.

The seller may closely interview a dozen prospective buyers to see whether they are a match on a deeper level. For example, the seller may want to know whether the buyer intends to retain the seller’s employees or lay them off, or whether the buyer will keep the seller’s company intact and incorporate it as a separate unit into its own organization. Factors like this enable the seller to exclude buyers who have different goals, philosophies or approaches to business than they have.

For example, the seller may want to keep the top management of the company intact, but only a handful of buyers are willing to accommodate this. This type of criteria used by the seller can rapidly reduce the number of prospective buyers, because not every buyer is interested in retaining some or all of the seller’s workforce. And those who are amenable to this may not be willing to buy above a certain price (a price lower than what they would offer if the seller did not have this requirement).


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