Prospective Buyer List

Published: | Updated: June 22, 2017

Definition - What does Prospective Buyer List mean?

A prospective buyer list refers to the list created by investment bankers or business brokers after they have been engaged by a company's owner to manage the sales process of the business. Once completed, the prospective buyer list is usually presented and discussed with the client so that potential buyers can be ranked in order of preference, and also to determine if others should be added or some should be removed. Once finalized, the advisor uses this list to drive the marketing process by reaching out to these potential buyers to gauge their interest usually by sending them a teaser. The main purpose is to generate sufficient interest so that multiple buyers sign confidentiality agreements and proceed to reviewing the opportunity more in depth, so they potentially submit an expression of interest (EOI) or indicative offer.

Investment bankers usually build prospective buyer lists by using their transaction databases and leveraging their existing relationships. Transaction databases are particularly useful as they help the advisors to screen the overall market and identify active buyers with similar transactions that could be a good fit for the target.

Divestopedia explains Prospective Buyer List

Once the teaser and confidential information memorandum are completed, the advisor and his/her client further refine the prospective buyer list. At this stage, advisors will not necessarily discard potential buyers, but, rather, attempt to reach as high a number of potential buyers as possible. However, good advisors usually pre-qualify these buyers based on fit with the target and their ability to complete a transaction based on their financial capabilities and overall M&A strategy. Ultimately, the advisor's goal is to create competitive tension by approaching many buyers and drumming up significant interest so that the best offer can be received. However, high interest resulting in a potential high price must be balanced with the proposed transaction structure and the buyer's history of closing transactions quickly and smoothly. Therefore, a large prospective buyer list can be useless if most buyers are low probability targets. A seller is better off with a shorter list with good, quality buyers that can actually close a deal.

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