“A needle in the haystack!” or “A diamond in the rough”, both
popular saying’s apply to what’s involved in finding your
ideal company to buy! Any seasoned business buyer will tell
you that finding viable companies that can be purchased for
reasonable terms is a “numbers game”.
Thousands of company purchase candidates defined, that lead to
hundreds of contacts to be made, resulting in tens of
acquisition conversations that hopefully lead to ONE company
acquisition! Many merger and acquisition veterans will tell
you “It takes 100 potential opportunities to get one good
deal” … a numbers game.
At any point in the business buyer’s purchase process, for any
number of valid or invalid reasons, either the business buyer
or the business seller can call off the potential deal. Most
potential business mergers and acquisitions pursuits do fall
apart. The human and financial costs to both parties involved
can be significant, sometimes devastating.
What Is a Business Buyer to Do?
From a business buyer’s perspective, there are four fundamental
stages to finalizing a business acquisition: searching for a
business, qualifying the business, valuing it and negotiating
with the seller. This article will highlight how a business
buyer can eliminate many of the major, common mistakes buyers
make within these business purchase steps:
THE BUSINESS SEARCH STAGE:
As a business buyer you want to use as many means possible to
position yourself to get the first shot at a viable business
that can be purchased. Preferably your goal should be to find
a purchase opportunity where you have no other purchase
competition. Herein lies the most noteworthy justification for
being as creative and diverse as you can be to locate
acquisition candidates.
Often the more “creative” you are to find companies to purchase
the quicker you’ll find the “right” deal. This is particularly
true if you seek to locate quality candidate companies that
are not officially “for sale”. The level of buyer competition
is often most intense relative to quality companies who have
NO KNOWN justification to consider a merger or acquisition
offer. If the business owner has no compelling reason to sell,
knows he has a company of extraordinary value, in great
purchase demand, more often than not, only creativity will get
you in front of that potential seller.
THE BUSINESS QUALIFICATION STAGE:
As a business buyer you not only need to know how to
effectively qualify a business financially and non-
financially, but you must present your financial and management
capabilities to the business seller in a most professional
manner.
Often business buyers have not prepared in advance a formal,
written: resume’, identification and qualification summary of
their “purchase team” or validation of their financial
resources, to be provided to the business seller at
introduction. To an owner of a quality business, getting this
information early in the mutual buyer/seller evaluation
process is critical, especially if there are multiple buyer
candidates.
THE BUSINESS VALUATION STAGE:
As a business buyer you need to know “what you don’t know”! Do
not try to do everything yourself, especially if you are not
familiar with the task requirements at hand.
When it comes to determining the market value of a business, a
business buyer must hire a proven business valuation expert
for two key reasons:
1) This step in the business purchase process can be very
complex and warrants utilization of proven expertise, and
2) When it comes to presenting a market value to a business
owner who has invested significant time and money to “build
his baby”, you as a business buyer want to make sure the
business valuation analysis and final valuation number comes
from a “3rd party”. It is much easier to negotiate a purchase
price with the business seller if you weren’t the same guy who
established the opening “low ball” offer!
THE BUSINESS NEGOTIATION STAGE:
As a business buyer you essentially want to purchase
controlling interest in a viable business for a fair price,
with favorable purchase terms, financed with as much of other
entity’s money as possible.
The negotiation portion of the business purchase process with
the business seller, or their representative, is where most of
this purchase objective can become a realization. Effective
negotiation skills are not innate. They are developed, acquired
and honed over many years of “verbal warfare”. Plan
and practice you negotiation strategy prior to meeting with
the owner and hire a professional if you have any doubt about
your desired outcome. This is NOT the point in the business
purchase process to start to minimize your acquisition costs!
The odds of a business buyer finding and effectively buying a
quality business are against him before he even starts his
business purchase program. Ultimately the business seller
knows EVERYTHING about the business for sale but the business
buyer theoretically only knows what he asks about or
determines to be valid via his due diligence …”buyer beware”!
Buying a business is truly a numbers game … a game that can be
consistently won if the business buyer truly understands his
challenge at hand and has the discipline to know when to stop
the purchase pursuit and utilize proven business merger and
acquisition expertise.
About the Author:
Mark Smock is President of
,
the FIRST international business buyer directory of its kind.
Business Buyer Directory provides a non-traditional means for
proactive business buyers to locate businesses for sale
worldwide that meet their exact registered purchase criteria.
