April 17, 2015
By Larry Reinharz
I recently received a phone call from a business advisor. His client “has a buyer,” and the advisor was contacting me to obtain an idea of value for the company. He said the owners wanted a minimum of $20MM of cash, and if they didn’t obtain $20MM of cash, they would keep growing the company. The owners were not interested in marketing their company for sale. The owner had not yet received an offer, but the advisor was putting together a financial package to present in a meeting with “the buyer,” which was scheduled in a few weeks.
Typically when we bring a company to market, we obtain 5–30 written offers (Indications of Interest) from buyers globally within 8 weeks, prior to the owner(s) meeting with the buyers.
There may be some conference calls between the two parties prior to the offers but no meetings. The buyer must submit an offer in order to have a shot at making it to the next round…the next round being a meeting with the owner.
We closed a deal in Brazil, where the ultimate buyer’s final price ended up being 4 times higher than their initial offer, owing to 6 other viable offers. We closed a deal in Texas where the dealmaker, along with the client, decided to hold 11 meetings over a two-week period with different buyers after sifting through 31 different offers! We closed a deal in Chicago where we obtained 14 offers, did nine meetings and obtained seven Letters of Intent, which ranged from $12MM–$27MM in enterprise value for the company.
So why do business owners entertain and spend time with direct solicitations from buyers?
1. “I need to keep this confidential.”
Business owners are concerned that if anyone finds out they are selling, whether it be customers, suppliers, employees or competitors, it will ruin their company. They want the highest price for their company without an aggressive marketing campaign. Our process is designed to comprehensively market companies while maintaining confidentiality. After 22 years of selling many companies, we never had a client say to us, “Stop marketing my company. The word is all over the street, and it’s killing me!”
2. “Why pay a fee? There are buyers contacting me directly.”
We closed a deal in New England where the owner engaged us after he spent the better part of a year trying to get a deal done with a large strategic buyer. We flushed out the market, obtained a number of offers, which then forced the strategic buyer’s hand. The large strategic buyer ended up paying 11% more than the next best offer net of our fee (6% of the value). On the deal we closed in Chicago, where we had seven final Letters of Intent ranging from $12MM–$27MM, it is important to note that the initial offers were 10%–35% lower. Our fee on that deal represented approximately 4.5% of the total deal. We closed a deal in Panama, where the buyer who made an offer for our client’s company prior to our global auction, did not have a strong enough offer to make it to the final stages of meetings
75% of the time our client ends up selling their company to a buyer they never heard of.
3. “Nobody knows my company better than I do. I know how to negotiate, and I am the company’s best salesperson!”
Agreed. How can Woodbridge, or any other advisor, know or sell a company better than the owner? We cannot; however, that is not our value proposition. The value we bring is presenting the company in a compelling and credible manner, communicating the attributes of the company–on a confidential basis–to thousands of targeted strategic and financial buyers globally and leading them all into a process where they chomp at the bit for a chance to meet with our client.
Within two months of bringing a company to market globally, we obtain anywhere from 5–30 offers from buyers prior to our client meeting with any of them. We know how to run this process and flush out the best of what the world will pay while maintaining confidentiality.
Time is the one thing you do not get back. It pains me when I hear business owners say, “I have a buyer.” This often means several months or years of meetings, conference calls and an array of professional fees, which frequently concludes with a business owner who still has no idea of the true market value for their company. Yet, now, they have divulged confidential information on their company and decreased the odds of completing a deal since they did not run a controlled process and create competition among multiple buyers.
The best advice we can give to owners considering an exit is to develop relationships with M&A professionals that will provide them with periodic value assessments for their company. Then, when it appears as though the business is operating at a level that will provide the owner(s) with sufficient liquidity upon a sale, have a reputable M&A firm market the business globally on a confidential basis without an asking price. This way, the global market will truly speak!