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Exit Planning Mistake 3 – One Buyer is No Buyer

By Generational Equity

07/20/2016

This is the third in a series we started a few weeks ago that examines common exit planning mistakes that we see business owners make when exiting their companies via an M&A event WITHOUT professional M&A advice. The first two covered:

  • The importance of maintaining your focus on successfully running the business even while spending up to 1,000 hours of your free time on an M&A process.
  • An expansion on a theme introduced in the first: The folly of trying to close an optimal deal without hiring an M&A advisor to guide you.

These were so well received by our readers that we decided to continue the series and today we examine two concepts that most attendees at our M&A conferences find to be most enlightening:

  • The importance of casting a wide net when looking for buyers.
  • Not assuming at the outset specifically who your buyer will be.

It is really amazing to us how often business owners will tell us who the buyer of their business will be even months before beginning their actual search. In the words of Stuart Smalley, “That’s just stinkin’ thinkin’.”

Why?

Because if you assume from day one who your buyer is going to be, you eliminate the possibility that there may be other companies/individuals interested in your opportunity.

One of the great advantages of the Generational Equity 15-step M&A process is that we try to create what we call “a limited auction” for our clients. Do we always achieve this goal? Is it always possible to get multiple bidders attempting to acquire one of our clients? Of course not. However – and this is key – even when we don’t actually create an auction, buyers know that we usually do, so they typically assume that they are competing with other buyers, and they often sweeten their offers in terms of the value paid and/or deal structure.

Key Questions to Ask Yourself

If you are in the market without our help, you won’t be able to do this because you don’t have a reputation with buyers to help create this impression. So you will need to step back from your mindset and challenge yourself to truly think outside of the box:

  • Instead of assuming who the buyer will be, ask yourself, what features of my business will optimal buyers find attractive?
  • What are the intangibles of my company that would be value added to other buyer types?

These questions are critical for you to examine as you begin your exit planning process. But they tend to be the ones entrepreneurs avoid because frankly they take hard work and creativity to answer. And if you are already assuming who your specific buyer is going to be, these questions will be even harder for you to answer because your mind will be closed to fresh ideas.

I suggest that before you even start to think about buyers, that you take your co-owners, trusted advisors, and spouses away for a long weekend and brainstorm about the company – its strengths, opportunities, threats, and yes, even its weaknesses (a.k.a. SWOT analysis). If you can do this, trust me, it will be well worth the effort.

Since this is often nearly impossible to do, as we discussed in our second posting in this series, it is a really, really good idea to hire an M&A advisor to work with you through this process. Generational Equity’s team of evaluation and deal making professionals have the skills needed to uncover your intangibles and unique features, especially those that might attract the optimal buyer you are truly looking for.

If you are interested in attending one of our M&A conferences to learn more about what buyers are interested in, please reach out to us via our website, and we will be in touch. Or, in addition, you can call us at 972-232-1121 or fill out a contact form.

If you are going to look for buyers without professional help, brainstorm, brainstorm, and brainstorm. Don’t assume at the outset that your buyer will be your Cousin Larry who five years ago mentioned that he was interested in acquiring your company if you would carry paper for five years. That is definitely NOT an optimal buyer NOR an optimal deal.

Carl Doerksen is the Director of Corporate Development at Generational Equity, part of the Generational Group.