29 Jul Absolute Key to Maximizing Sale Price
What is the one absolute, undisputed key to selling a business for maximum value? Multiple, high-quality buyers, worked simultaneously.
Could it be anything else? Nope. Everyone instinctively knows this. Still, many try to find another way. Attempt to ply an alternative route to an optimal sale.
There isn’t an alternative, at least not a viable one.
Why do business owners do this? Why do otherwise smart, accomplished people ignore the truth that can literally set them free?
Some call it the “limited auction” technique. It’s not a bad name except that it’s thrown around by some of the up-front fee collection M&A scams. But, to be sure, the ideal process “limits” buyer candidates. That is, it includes only the best, most capable buyers. The ideal process also includes a “Going, Going, GONE!” element. It’s the essential auction component. Once all the buyers have had a chance to familiarize themselves with an item, the bidding starts and the price goes higher and higher until, finally, the last buyer is left holding up his or her bid card. Going, Going, GONE! All bidders know the opportunity will pass them by if they fail to act.
When the goal is to maximize an asset’s sale value, there must be a “Going, Going, GONE!” This is not in a public sense, but in a quiet, confidential process worked by an M&A advisor in coordination with the seller.
Take my word for it: Business sellers, even smart, successful ones, actively take alternative roads to sell their businesses – to their great disservice, and in many cases, to the disservice of others (e.g., employees, vendors, customers, and the owners’ family members).
Why would they do this?
Ignorance of how to deal with the confidentiality imperative and also of how to execute the proven process (i.e., buyer profiling, buyer search, preparation, packaging, etc.) to maximize value.
Hubris, or excessive confidence in one’s own abilities, takes hold in a seller’s mistaken belief that because he has been involved in the purchase or sale of a few businesses, he can represent himself.
Fear…of success, or of letting go and trusting another person or firm to handle the job. Fear that the business really doesn’t have much value and will not hold up to serious buyer scrutiny. As a result, the selling strategy retreats to a part-time process, waiting for a buyer to come along with more money than sense. Of course, it doesn’t matter whether such buyers exist anyway because, without multiple buyers worked simultaneously, the seller will never be able to garner the momentum and excitement and urgency required to actually close a deal for the maximum possible price. Businesses that have serious weaknesses need to adhere to the proven methodology for value maximization more than any other businesses!
I find as well that sellers are afraid the buyers won’t like them for running such a process. They mistakenly think it’s more about relationships. Yes, relationships are important, but the sellers that get a maximized price run a process with some urgency. They let the buyers compete a little bit. “We are looking for the best buyer,” is all you need to say. “We really like you, but we want to see who and what is out there. I hope that is okay with you.”
Finally, some business owners are just willing to accept mediocrity. They’re burned out or lack commitment and vision and therefore are unwilling or unable to figure out the right way to go about selling a business. Even if they did, they aren’t willing to expend the time, energy, and money to walk the path traveled by winners.
So if you’re the owner of a private company and will someday sell or recapitalize, you have a choice to make. Find a way to run a process that secures for you the key to closing a deal for maximum sale price, or try an alternate course. Every alternate course means talking to buyers one by one, linearly. The result is always the same:
- Seller left without choices (i.e., offers come in at different times).
- Seller has little negotiating strength.
- Seller unable to force buyers to comply with a real drop dead date.
- Seller cannot make buyers really feel the all-important sense that “this is a rare and widely desired opportunity that, if not seized upon now, will pass forever.”
- Seller unable to walk away. If seller wishes to sell and has just one buyer with a firm offer on the table, what does seller do when the smart negotiating strategy calls for tough tactics?
Yes, there is but one absolute, undisputed key to selling a business for maximum value: multiple, high-quality buyers worked simultaneously.
“Value” can be anything desired by the seller. Most often it’s cash, but there are myriad value points in every deal: warranties, representations, leases, options, consulting agreements, termination rights, break-up agreements, expiration dates, etc. When the proven process is executed and the negotiating power rests squarely in the hands of the seller, it can be wielded to extract value in so many ways. And this is when deals get fun. It’s when one’s willingness to plan, prepare, and do the work really pays off.