In Theory vs Actual Reality

A steady flow of proprietary deals sounds great—there are no competing bidders, right off the bat. However, anyone who has ever worked through a proprietary deal knows that it’s never completely smooth sailing.

Building a steady flow of proprietary deals sounds good, but you may face unexpected challenges. Share on X

Consider these pros and cons.

PROS

No Immediate Competition: You won’t have to wonder who you are competing with to acquire the company.

Faster Route to Close: The process will move more quickly because the seller has signed an LOI that specifies how long the buyer will have exclusivity (e.g. 30, 60, or 90 days).

Easier Post-Sale Integration: A seller won’t agree to a proprietary deal unless they already feel comfortable the potential deal is a good strategic match. During the due-diligence phase, either party can terminate the non-binding LOI.

Business owners who are confident in their choice of buyers will be better prepared to reassure their employees that the sale hopefully will be beneficial to them.

CONS

More Up-front Marketing and Origination Work: Finding relevant, desirable companies is a time-consuming process. And, the most desirable companies may already be receiving multiple inquiries.

Many sellers already have a vision of an “ideal” buyer. If your firm doesn’t match that ideal, the seller has the right to turn down a proposed suitor before sharing any confidential information. That’s why investing in the brand image and reputation of your company is critical before going to market. Don’t underestimate the value of your reputation in attracting proprietary deals. Some potential sellers within a targeted industry will be aware of your company’s reputation. Understand that goodwill is a critical part of the offering to acquire a business. What is the perceived value of your brand?

Gaining the attention of sellers who are actively looking for buyers requires using SEO best practices and developing content that gives business owners a clear picture of why your company should be their first (and only) choice for dealmaking. Your website should convey your company’s deal-making philosophy and what types of sellers would be an ideal match.

Selling Price Skepticism: The seller of the business may instinctively be wary of settling for what they perceive to be a “low-ball” offer. For many owners, the sale of their business will be the biggest, most complex transaction of their life. They experience a lot of anxiety about whether they are doing the right thing and often wonder if they could get a higher price or better deal elsewhere.

To keep the private communications from collapsing and opening the potential deal up to competing bidders, try to get a sense of the seller’s expectations from the start. Gauge how much competitors might offer.

Seller Hand-Holding: If your company has reached out to introduce yourself to owners of companies that seem to be good acquisition targets, the seller probably isn’t emotionally ready to jump right into the sales process. You can’t afford to waste valuable time coddling an indecisive seller. Some skittish sellers will procrastinate in giving you information needed to proceed with due diligence.

More Complicated Deals: Sellers who want to preserve the “legacy” of the companies they have built may expect you to negotiate more non-financial topics, such as guaranteed retention of certain employees.

How the Right Consultant Can Help

An industry-expert consultant helps sellers improve their deal flow. Proprietary deals are gratifying for both the buyer and the seller—especially when both the buyer and seller are happy with the outcome. Buyers and sellers who are pleased with the quality of services the consultant provides will recommend that consultant to other business buyers and sellers. Word-of-mouth referrals matter to consultants.

More importantly, an experienced M&A consulting group has the knowledge and connections to find preferred matches.

At the LaManna Consulting Group, we educate and empower owners to be realistic about the valuation of their companies. And, we prepare sellers emotionally and mentally by helping them envision the next phase of their lives.

If you are interested in attracting more industry-specific deal flow opportunities in the label, packaging, or specialty converting industry, call me at 561-543-2323 and tell me more about your company’s investment objectives and acquisition criteria. We can help you identify targets and owners who are preparing to exit and sell and might prefer making a proprietary deal with a buyer they can trust.