How to select the right business buyer
All things going well during the sale of your business, at some point you will need to select one potential buyer, out of multiple interested parties, to proceed with on an exclusive basis and to finalise your sale with.
This decision is not always simple. Sure, price is normally a major driver in this decision – most business owners are aiming to maximise their financial windfall from a transaction after all! However in our experience, it pays to look at multiple other factors as well when determining which buyer to proceed with. Below we’ll outline some of the other considerations that should be taken into account.
1. Certainty to Complete
How certain are you that a particular buyer will complete a transaction? The process of completing due diligence, negotiating contracts and finalising a transaction can be financially and emotionally draining. Because of this, it’s vital to ensure the business buyer that you pick will last the distance.
Consider the buyer’s track record – have they completed a number of transactions in the past? Also look at the resources and energy that they have invested to date – how serious do you think they are?
If you have strong doubts about a prospective buyer’s chances of completing the transaction you may need to reconsider proceeding with them on an exclusive basis.
2. Terms of the Transaction
Many buyers may offer an impressive price for your business. It pays however to look beyond the price to the terms demanded with any offer.
Some key terms to consider include:
- Share or Asset Purchase: Find out whether the prospective acquirer intends to purchase the shares in your company or simply the assets of your business (e.g. physical assets and goodwill)? This preference will likely have an impact on the complexity of the transaction, and normally influences what the final net proceeds will be to you from your divestment.
- Future Role of Directors and Shareholders: What are the prospective buyer’s expectations regarding the future role of directors and shareholders in the business? What remuneration is payable to directors and shareholders for their involvement in the business post-sale? What are the details of non-compete terms demanded? These factors will have a major impact on the strength of each prospective buyer’s proposal.
- Warranties and Guarantees: Will the prospective buyers demand that warranty clauses or guarantees are integrated into a contract? Consider the risks raised by any such conditions.
If the terms demanded are restrictive or unreasonable then the buyer may not be for you.
At Quinn M & A we have the experience to guide you when selecting the right buyer for your business in consideration of these and other factors.
If you are seeking a professional advisor to assist you with the merger, acquisition or divestment of a business with an enterprise value of between $1 million and $50 million please contact Quinn M & A on 02 9223 9166 or email [email protected] to find our nearest office.