We’re working with a client right now whose number one priority isn’t really the value of the company or how much cash he’ll take home at the end of the day. The truth is the business is already worth far more than he can spend in his lifetime.

Instead of focusing on price, this seller is more interested in making sure the company stays where it is, that his employees continue to have jobs, and that his management team gets an opportunity to buy an ownership stake.

Given these priorities, we discussed the different ways we could take his company to market. We can run through the full sales process, reaching out to buyers across the country or even the world. As this will be an attractive acquisition, we could readily expect as many as a hundred buyers to express interest.

Or, we can run a limited process, effectively vetting buyers ourselves and giving only a select few (anywhere from five to 10) an opportunity to purchase.

The full process works best, of course, when an owner wants to maximize value and get the best terms.
It creates a confidential, competitive bidding environment on the open market, and is the only way to truly know how much a company is really worth. It does take more time however, and the owner can expect a fair number of distractions, buyer questions, and meetings along the way.

Smaller Pool, Better Focus

Using a limited process, we still maintain a confidential, competitive bidding environment that will bring a much stronger value than just dealing with one buyer as the seller still maintains negotiation leverage with multiple buyers, but with a much smaller buyer pool. Logically, this could reduce the overall purchase price. It does, however, reduce the amount of time he’ll spend meeting with buyers, answering questions, and showing off his business.

What’s more, it’s likely that our preselected buyers will put more time and attention into the deal, knowing they have a 10 or 20 percent chance of completing the acquisition. Acquiring a business is a costly, labor intensive process and this kind of limited engagement gives a buyer far better odds than they’ll get on the open market.

As a result, we anticipate the initial offers will be more thorough and even more aggressive than the initial offers we’d generate through a full, traditional process. How the final price would compare—that’s something we won’t ever know. But the seller feels the tradeoffs in terms of time, attention, and confidentiality (lower risk that word will spread) are worth it.

Right Kind of Buyer

The seller’s unique goals also have a significant impact on the kinds of buyers we’re targeting. While money isn’t the primary issue, the business value is still far out of reach for most individual buyers. Likewise, strategic buyers (other active businesses) may pay top dollar, due to synergies between the two companies but, are not a good fit in terms of job preservation and management equity. The best option, then, is likely a private equity firm. These groups are generally more interested in maintaining local leadership and have more experience in structuring deals that include an outside ownership stake most times from the existing management team.

Right now, we’re researching private equity groups who have demonstrated knowledge or interest in this space as well as groups who would match up well with the company’s small town, family-minded, independent culture.

We’ll target private equity groups who have already completed successful industry acquisitions in small town USA. They’ll be a better fit for the deal, and the seller will gain greater confidence that the buyers can in fact maintain company culture, preserve jobs, and deliver on their promises.

Your Values First

When it comes time to sell, don’t get roped into a cookie cutter sales approach. Work with an advisor who will listen to what’s important to you, even if the highest price isn’t your number one priority. You should have options (in terms of buyer pool, marketing reach, and deal terms), that best match up with your specific values and goals.

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A thought-leader in the industry, Scott developed the Cornerstone Process to offer investment banking M&A-level services to the lower middle market. The result is a closing ratio that’s more than double the national average.