In the business world, everyone knows that increased competition alters the status quo in the marketplace. When more competition enters a market for goods or services, consumers generally get better outcomes in the form of lower price, quicker service or better quality products.
In the market for businesses, competition can also dramatically alter outcomes. For business sellers, understanding how to drive and shape competition to buy your business can help produce better transactional terms, drive up price and lead to quicker transaction timeframes.
So how do you build a competitive environment when selling your business? How can you make buyers fight with each other to secure your business? The processes involved will determine your success or otherwise when selling your business, so it’s important to follow proven methods and processes to ensure maximise competitive tension is developed and maintained throughout your transactional process.
So what process should you follow?
In our experience, the most effective process when selling your business to ensure competitive tension is built and maintained involves 7 key steps:
1. Build a comprehensive and detailed list of ‘target buyers’: This list should include competitors, businesses up or down your supply chain, private equity groups, experienced business buyers, high net worth individuals and potentially employees of your business. Typically, our target lists will contain between 100 and 200 targets.
2. Research each of your ‘targets’: Complete research on each of your targets to understand their trading performance, their appetite for buying businesses similar to yours, and their experience in executing business transactions.
3. Rank your ‘targets’: Based on your research, set out to rank your targets in order of who you think most likely to show interest, and most likely to have the financial capacity and skills to execute a transaction.
4. Go to market: Systematically and relentlessly contact each of your targets on a confidential basis. Initial discussions should aim to assess each target’s appetite for completing a transaction, and at a minimum, each target should agree to basic confidentiality terms before the identity of your business is released.
5. Dictate the process: For those parties who show interest, it is important to be clear on what the process will be for interested parties to follow. A common process may look something like this:
(a) Sign a confidentiality deed;
(b) Information memorandum released;
(c) Submission of non-binding proposal by 1 July 201X;
(d) Preliminary due diligence completed by shortlisted parties;
(e) Final offers submitted by 1 August 201X;
(f) Buyer selected to complete transaction on exclusive basis by 15 August 201X.
By being clear on the process from the outset, you will place yourself in a firm position of control. The cumulative effect of setting out the same process with multiple parties at the same time means you will be in a powerful position to drive competitive tension throughout the transaction.
The key to building and maintaining competitive tension is in having a well prepared transaction plan, and spending ample time prior to going to the market refining and preparing for the process to come. It pays to remember, proper preparation prevents poor performance.\
Find Out More
Quinn M&A’s experienced transactional advisors can assist business owners with executing the sale of their business. Contact Quinn M&A on +612 9223 9166 or submit an Express Enquiry to arrange a no cost consultation with one of our Directors.