To ensure an M&A process runs smoothly, business owners should confirm the investment bankers who represent them know how to properly qualify buyers. Otherwise, owners will be stuck in a time-consuming process that goes nowhere and increases the chance their confidential data will be sent to a competitor. Here are the main areas to consider when evaluating a buyer:
- Financial capabilities – What cash has been raised or set aside? Is the cash pledged or collected? Confirm that funds are available. Are lenders involved, and if so, what relationships exist?
- Buyer experience – Are you confident that the buyer and buyer’s advisors know what they want and understand how to structure a likely closing
- Strengths - What unique buyer capabilities enable accretive earnings after closing? Does the buyer offer management experience, cash for growth and add-ons, an extensive distribution channel, greater purchasing power or SG&A savings by eliminating redundant departments? Buyers talk about historic earnings multiples, but they only buy future earnings.
- Sweet spots - What size, geography, trends, profit margins does your buyer seek? Does buyer expect a strong earnings history or is a turnaround situation of interest? Does the buyer’s lender focus upon assets, cash flow or specific industries?
- Management – Does the buyer expect to manage daily operations? Or keep the current management in place?
- Motivation and timing – Is profit, growth, security and/or image the motivator? If a strategic buyer, does the buyer have gaps in its product line or geography? If a financial buyer buying on behalf of a portfolio, is the portfolio company growing, digesting, or readying for a sale?
- Reputation – What is the buyers reputation within the industry? Do the buyer and seller share similar values and ambitions?
- Deal structure – Does the deal need to be an asset sale? stock sale? Will management get equity or does buyer want 100% ownership.
- Decision maker – Is the final decision up to a group? an individual? a family? a bank? the minority shareholder? Too many deals fall apart after someone in the background appears with the power to squash the deal.
- Competitive Intelligence – Is this a real buyer or a competitor hoping to get access to the financial data and business plan of the owner?
At IndustryPro, we have been matching sellers with qualified buyers for over 20 years.