More Buyers Means More Leverage
How you approach the market when selling your business is an art as well as a science. By seeking the help of an investment banker who understands your business, your industry, and the subtleties of the deal process, you will improve your chances for success.
An important piece of advice is to reach out to multiple buyers. While a potential buyer may assume there are other interested parties, even when there is not, it is always better to actually have multiple parties in the process. It’s like fishing big game – keep the prospects interested as long as possible and play them against each other.
During this phase of the deal, the investment banker can play the key role as the “bad guy” by applying pressure when needed and easing up on the throttle when advantageous. Potential acquirers will likely want to deal directly with the CEO (Entrepreneur), but there are ways in which you can be a key part of the deal and still have your banker by your side. When information is needed from prospects or when term sheets require improvement, the investment banker can play their role by applying pressure and achieving those results.
My advice for entrepreneurs is to:
- Get independent advice on valuation ranges and be flexible
- Determine in advance the deal terms that are most important to you, including mix of cash and stock, how long you want to stay, etc…
- Develop a weighting system for these criteria; this will really help in evaluating the term sheets when they come in
- Be thoughtful about how many prospective buyers advance to the next stage, remembering that it takes more time than you would expect to negotiate terms
- Remind all parties that you are negotiating with multiple parties – keep the pressure on and ensure they are always putting their best foot forward