When selling a business, what are the best methods to find qualified buyers?
I am of the opinion that in order to maximize value in the sale of a mid-market business, a widely-marketed sale process should be conducted. This means getting a no-names teaser to as many qualified parties as possible. I believe increasing the number of interested parties improves the chances of receiving a higher quality offer.
Some may argue that this type of auction significantly increases the risk of breaches in confidentiality. While this is true, there are best practices that can be put in place to mitigate these risks.
So back to the initial question: What are the best methods to find buyers for a business? My firm, Stone Oak use the following three marketing channels to communicate the teaser of the company being sold:
- Direct approach — outreach to a list of prospective purchasers compiled through detailed research obtained from industry and M&A databases. The list attempts to identify parties that have the interest and financial wherewithal to complete a transaction on acceptable price and terms;
- Intermediaries — contact a network of intermediaries in relevant industries and regions that can make introductions to qualified buyers. This network of intermediaries would include investment bankers, lawyers, financial bankers and M&A professionals. Many M&A firms have a policy of intentionally excluding this marketing channel for their clients’ sale processes. I am not entirely certain why, but I speculate that the reason for this exclusion is because they fear a breach of confidentiality and do not want to share their firm’s information with competitors in the marketplace. My firm believes that collaborating with other M&A participants increases the chance of success for our clients, so we value this communication channel for our M&A deals; and
- Indirect approach — distribution of the teaser through relevant online social networks to a wide audience of M&A participants. Again, this is an approach that is still not fully adopted by many M&A firms. I believe there is an old school stigma that mass distribution in this fashion means the M&A advisor is not fulfilling their responsibility of diligently scrubbing each prospective purchaser before approaching them. There is also a perception that a widely marketed deal must mean that the target is of lesser quality. I disagree. The truth is that regardless of how much research is performed, it is impossible to create a list of all logical prospective buyers that might have interest in your business. Even companies that you believe are perfect fits might not have the appetite, capacity or resources needed for closing a deal at the time the business is being marketed for sale. The indirect approach is a necessary method to uncover covert prospective buyers.
These three marketing channels must be utilized in a sale process if the owner’s objective is to maximize valuation.
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Written by John Carvalho
John is president and founder of Stone Oak Capital Inc., an M&A advisory firm, as well as a co-founder of Divestopedia. For more than a decade, John has served his clients on numerous valuation, acquisition and divestiture assignments in a wide variety of industries. John holds the Corporate Finance designation, is a Chartered Business Valuator and a Chartered Accountant. He has made it his life's mission to help entrepreneurs build valuable businesses and Divestopedia serves as an avenue for this cause.Full Bio