By Scott Bushkie
Though you might be in the “Time to sell my business” stage. When a large firm or private equity group calls with interest in purchasing your business, it can be a serious case of ‘seller beware.’
These groups know that once they get into one-on-one negotiations, they’ll have all the leverage. Some may even tempt a business owner with a high price, but then slash away at it through the due diligence process.
If you feel a potential purchaser is sincere, and you can see why they’d want to acquire your business, seek immediate support from a business intermediary and let them help you build your team of deal specialists. Remember, these buyers have experts whose job it is to get them the highest return at the lowest price possible.
Negotiating without support would be like challenging Lance Armstrong to a race. You just can’t expect to beat the professional at his own game, especially one you may have never played before. Here’s an example:
After getting a call from a large multinational corporation, one business owner called us to guide him through the process. Figuring his company was worth about $3 million, he wanted to start negotiations at seven and work down from there. The buyer, as can be expected, was pressuring him to name a price, which would cap the value.
Instead, we packaged the business, identified several synergies and outlined future scenarios for both companies. Our client could continue to do a nice business and even expand without support. But the buyer would spend millions in direct expenses and lost opportunity costs trying to establish itself in the market.
In the end, the seller received over $10 million. Honest disclaimer—results not typical. But it is a true story of what can happen when you enter negotiations with informed power.
In another actual scenario, the business owners were approached with a $5.5 million offer from a large competitor. The sellers thought this was fair, but they wanted to be sure that it was all the market would bear.
We expedited our process and within 60 days generated six competing letters of intent. At the end of the day, the seller received an additional $1.25 million in total consideration.
That’s not a bad takeaway just for gathering the right support team. Plus, when it was all said and done, our clients got to sleep at night knowing they had done everything possible to maximize the selling price.
In both cases, the sellers had the foresight to gather a professional team and level the playing field. Fail to do this, and I guarantee you’ll leave money on the table.
Even the most honest negotiations are just that—negotiations. You only sell your business once. This is no time to shrug your shoulders and assume the other side is being generous or even fair, as the saying goes: “You don’t get what you deserve, you get what you negotiate.”
Scott Bushkie is President of Cornerstone Business Services, a low to middle-market M&A firm with offices throughout the upper Midwest. Reach him by phone at (888) 608.9138