Jim Shaw, CEO & Founder at Shaw & Co, explains what you can do to be taken more seriously when approaching a business that you want to buy.
"Sometimes, the business that you want to buy just isn’t for sale."
You also have to accept that, sometimes, the business that you want to buy just isn’t for sale. Many more, however, will be willing to listen to a proposal but are likely to be sceptical if starting from a position of defence – a “thanks but no thanks”. So how do you turn that into a constructive conversation?
Firstly, you have to understand why many business owners are so defensive when they are first approached. The reason is simple, a good business has probably received many approaches and most of these will have been ill thought through, poorly executed, derisory, or a diabolical cocktail of all three.
What’s more, interested parties will have requested commercially sensitive information while ultimately failing to deliver an offer, or an offer at a reasonable price. The owner will surely have recognised that their business is less than perfect and will be nervous that this has been made known to a third party, particularly a third party that is likely to be a competitor. On top of that, a business owner is also likely be nervous about the implications of having discussions should employees or customers find out that they are even contemplating a sale.
When you are designing your approach you need to consider and overcome these objections. To do this, it is imperative that you consider five key things:
Can you demonstrate that you have done your homework on the target business? While public information may be limited, there is certainly enough available on any company to show that you really understand what the target business does and can explain exactly why you are interested in buying them.
Take the time to explain who you are and describe more about the business that you represent. Referring to your track record of successful acquisitions can also be extremely helpful (unless of course this is your first deal!).
A potential seller will almost immediately want to know the valuation that you are placing on their business. However, as a potential buyer, you will need a certain amount of information about the target to be able to determine the right market price. As part of your approach strategy, you will need to acknowledge the tension this brings between both parties and convey your intention to arrive at an offer as soon as possible, specifying exactly what business information you need to get there.
First impressions count whenever you approach a business that you’re interested in buying. Aligning yourself with a professional buyer-side corporate finance advisor will give gravitas to your approach and instil more confidence in the owners that your interest is serious.
It is also important to think about the manner of the approach. Is there a mutual contact that you can leverage? An introduction from the company’s lawyer, accountant or banker maybe? Of course your approach needs to be confidential and directly to the major shareholders or senior management. ‘Who’ becomes as important as ‘how’ and requires an equal amount of consideration.
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