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When selling a business, it’s important to separate the serious buyers from the lookie loos. I advise my clients that realistically, they should expect a third of the buyers that submit indications of interest (“IOIs”) to drop off when asked to participate in more detailed discussions.
After receiving IOIs, I typically arrange for my client to meet with our four to six potential acquirers over the course of a week, with one or two meetings per day. Typically, buyers will bring several people to these meetings and the meetings will last three to four hours. Don’t be surprised to see potential buyers bring investment professionals, operations people, and even lenders and other capital providers to these meetings.
While some sellers will make canned presentations at these meetings, I find that it is more useful to spend the time getting to know one another and letting the buyer ask questions. At this stage, these buyers have seen and studied the marketing package we provided earlier and have likely had at least one discussion with the ownership group as well as several detailed discussions with me. Consequently, the buyer should have a fairly good understanding of the potential opportunity and a canned presentation isn’t necessary.
Most buyers will focus on the issues that are core to them at this stage. Most often, the meetings center around the ownership group’s plans (for themselves and their business), the key risks inherent in the business, and the opportunities for the growth of the business. Also, the company’s sustainability will ultimately be a key issue, so the buyers will want to know about the depth, strengths, and weaknesses of the management team.
Inevitably, the management meetings will result in the target buyers having a series of questions that they will need answered in order to fully analyze the value of the company and to prepare a thoughtful letter of intent. Since it is best for everyone to remove as many risks at this stage of the process, I usually expect that buyers will ask for one to two weeks downstream of the management meetings to get additional information from the company, do their own further background research, and ultimately prepare a letter of intent.
It is usually in your best interest to grant this additional time and to provide whatever reasonable information the buyers are looking for. It is crucial to eliminate as much obvious risk at this stage as possible, so that the rest of the transaction can go smoothly.