In Exit Strategies, Value Enhancement

By Scott Bushkie

It’s that time again, when little kids come knocking on your door, threatening something nasty if you don’t give them a treat. In the spirit of Halloween, I’m pulling the mask off my industry and revealing some common ‘tricks’ and ‘treats’ from the mergers and acquisitions field.

Trick: The ‘we have a buyer’ letter:  The broker sends a letter claiming to have a buyer interested in your business.
Most of the time, the broker is on a fishing expedition. Find out if a buyer named you specifically.  If the answer is ‘yes,’ proceed with caution and consider representation from a third party. You can put yourself at a disadvantage when you enter into one-on-one negotiations.

Treat: The ‘we have a buyer’ letter: The broker sends a letter announcing they have just sold a business in your industry and have buyers interested in companies like yours.
This is often legitimate. A reputable firm will drum up several buyers for a business. These extra buyers may have lost out in competitive bidding or might have eliminated themselves from negotiations because the company offered wasn’t the right fit. At any rate, the intermediary does likely have a group of motivated buyers.
Get the name of the company that was sold. Call the owner and find out if he or she was satisfied with the experience. Did the intermediary firm do what they said they would? If all checks out, investigate the opportunity.

Trick: The educational seminar: A handful of national firms are doing heavy marketing, attracting business owners to seminars on how to sell a business. I’ve heard from people that attended these, and they do come away with some good advice on building value.
But many of these seminars are elaborate sales pitches. At some point, they pull you into a private conference and pressure you into signing with them right away.  The rationale is that they have a conference they just happen to be attending in your industry and if you sign the agreement today, they’ll get you a lot of exposure.
That engagement, of course, will cost a hefty up front fee – often $30,000 or higher. At seminars like these, the sales staff get paid for signing you up, not for selling your business.  And with lucrative revenues like these on the front end, the firm has less incentive to close the deal on the back.

Treat: The educational seminar: We all know these seminars are business development exercises. But a reputable firm will provide valuable information without pressuring you into engaging as a client.
Go to the seminars. I’m all for education. Knowledge is power, and knowledge will get you more money. But beware of anyone who asks you to make a rushed decision or requires a large up front fee.
As with anything, do your due diligence. Ask questions, check references and you won’t get spooked.

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

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