To ensure an M&A process runs smoothly, business owners should confirm the investment bankers who represent them know how to properly qualify buyers. Otherwise, sellers may be stuck in a time-consuming process that goes nowhere and the chance their confidential data will be sent to a competitor will go up. Here are some areas to consider when evaluating a buyer:
- Financial capabilities – What cash has been raised or set aside? Is the cash pledged or collected? Confirm that funds are available. Are lenders involved, and if so, what relationships exist?
- Buyer experience – Are you confident that the buyer and buyer’s advisors know what they want and understand how to structure a likely closing
- Strengths – What unique buyer capabilities enable accretive earnings after closing? Does the buyer offer management experience, cash for growth and add-ons, an extensive distribution channel, greater purchasing power or SG&A savings by eliminating redundant departments? Buyers talk about historic earnings multiples, but they only buy future earnings.
- Sweet spots – What size, geography, trends, profit margins does your buyer seek? Does the buyer expect a strong earnings history or is a turnaround situation of interest? Does the buyer’s lender focus upon assets, cash flow or specific industries?
- Management – Does the buyer expect to manage daily operations? Or keep the current management in place?
- Motivation and timing – Is profit, growth, security and/or image the motivator? If a strategic buyer, does the buyer have gaps in its product line or geography? If a financial buyer buying on behalf of a portfolio, is the portfolio company growing, digesting, or readying for a sale?
- Reputation – What is the buyers reputation within the industry? Do the buyer and seller share similar values and ambitions?
- Deal structure – Does the deal need to be an asset sale? Stock sale? Will management get equity?
- Decision maker – Is the final decision up to a group? an individual? a family? a bank? the minority shareholder? Many deals fall apart after someone in the background appears with the power to squash the deal.
- Competitive Intelligence – Is this a real buyer or a competitor hoping to get access to the financial data, business plan or proprietary information of the seller?
At IndustryPro, we have been matching sellers with qualified buyers for over three decades.
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