We Work With Both Sides of the M&A Deal
The LaManna Consulting Group helps business owners understand what private-equity groups look for when seeking acquisition targets. We want business owners to be prepared so well-suited deals can go smoothly and be win-win propositions for both sellers and buyers.
But what do business sellers expect from people on the buy-side?
Personally, I have seen far-too-many potentially good deals fall apart because buyers and sellers started with different mindsets and expectations.
Many owners of middle-market companies will be selling a business for the first and only time. So they are inexperienced with the types of data and strategies private-equity firms work with every day.
Plus, the sale of the business is a life-changing event. Transitioning out of ownership represents the culmination of dreams and aspirations. So, sellers are often emotionally conflicted about the process and wary of getting burned.
Some sellers will simply walk away from a deal if they sense that the buyer isn’t’ being upfront with them about the terms of the offer and your expectations during and after the sale.
Here are a few requests that business sellers tell us they want from a buyer.
1. A Definitive Timeline
Is the buyer serious about completing the deal? Or is the buyer simply fishing for information about the target company? Has their transition team identified a target date to start and finish due diligence?
2. Discretion
Before due diligence begins, the seller will ask the buyer to sign a non-disclosure agreement (NDA). The NDA should clarify what information is deemed confidential and what information is excluded from the agreement.
The parties should agree how long the NDA will be in effect and how the buyer will dispose of the shared confidential information. The NDA may also include clauses that specify how the supplied information can be used or limit the buyer’s communications with the seller’s employees. A non-circumvention clause specifies a time period during which the potential buyer can’t directly or indirectly interfere with or circumvent the seller’s relationship with any corporation, company, partnership, or individual that the seller introduces the buyer to.
3. Clarity and Transparency
Is the LOI clear in terms of how the deal will be structured and how the owner will get paid? Is the buyer forthright about how the due diligence phase will be conducted?
Throughout the process, the seller expects clear, honest, and consistent communications from every member of the Executive Steering Committee for the deal. What additional details are needed? Has the buyer identified any issues that might derail the deal?
Sellers also want to know what the buyer plans to do with the company after the sale. Is the buyer well-prepared to succeed in this industry? Or does the buyer have unrealistic expectations about what it takes to operate a profitable business in our industry?
4. Trustworthy Negotiators
If the deal falls through, can the buyer be trusted to abide by the terms of the NDA? A seller will be reluctant to reveal sensitive information about the inner workings and financial status of their business unless they feel confident they can trust the buyer to only use the information to make a fair offer and ensure a successful transition.
Will the negotiator do some last-minute quibbling over working capital requirements in order to lower the final selling price? Will there be any unpleasant surprises when the buyer is feeling overwhelmed and exhausted by the process?
We Hear You, Too
Buyers spend a lot of time and money upfront just to determine whether the offered price is fair and there won’t be costly surprises or integration problems after the sale, so we understand why buyers feel aggravated when a seller slams the brakes on the deal during negotiations.
If you have suggestions on how we could better educate business owners who are planning to sell their companies in the next few years, give me a call at 561-543-2323. I’m all ears. I would be happy to share your tips for what buyers want from sellers in a blog post, a podcast, a video, or article.