How many buyers to approach?

From the M&A Information Series - (July 2019)

When you determine it’s time to transition out of your business and sell your company, a key decision to make is how many potential buyers to contact. If you knew the buyer that would pay you the most, agree to the best terms and conditions, have great rapport with you and move forward timely, the  decision would  be  easy.  Unfortunately, this  is not usually the case. Although working with just one buyer could be the right approach for you, achieving your objectives and maximizing the value of your business may (and often does) require contacting multiple parties.

When advising business owners, BCC Advisers typically discusses three different selling approaches: a focused sales process with only one potential buyer, a restrictive sales process with a handful of prospective buyers, and a controlled auction in which a larger number of prospective buyers are targeted. Each of these approaches brings with it different challenges and benefits.

At a high level, here are some of the pros and cons of each option.

FOCUSED SALES PROCESS:

• Greatest confidentiality and least distracting for the company and its employees due to limiting shared confidential information to just one company.
• Can be the quickest method to complete a transaction, if the prospective buyer is motivated and proceeds timely.
• Greater risk of not achieving maximum value, and no way of knowing if you received maximum value since only one buyer is approached.

RESTRICTIVE SALES PROCESS:

• Less confidentiality than dealing with one buyer, but more than in a wider reaching auction process.
• Possibility of overlooking qualified buyers.
• Greater certainty of achieving optimal price, as competition among buyers will drive valuation.

CONTROLLED AUCTION:

• Least confidential process as it involves the most prospective buyers evaluating the business.
• If attempted internally, there is a significant time commitment to research potential buyers, prepare business information, and potentially handle multiple negotiations later in the process.
• Best process to maximize shareholder value as it creates the greatest level of competition.

Owners’ objectives and the specifics of each transaction ultimately determine the appropriate strategy when taking a company to market, but it is important to weigh the potential impact of each approach.