Hello! I want to buy your business.
View the original article in the Triangle Business Journal by clicking here.
If you own or run a mid-sized business and don’t receive at least one call a week from someone professing to want to buy your business, you should wonder why. If this is an all-too-common occurrence, I will offer some ideas to help you sort through which, if any, of these calls to return.
First, if your attitude is: “I don’t plan to sell my business anytime soon, so it’s a waste of my time talking to these people,” let me push back. Perhaps, if you have nothing to learn, then maybe that’s true. But interacting with professionals who buy companies could be a valuable learning experience.
As an example, after a rigorous sales process that produced a dozen offers, I invited five potential buyers in to meet with the owners and senior management team of a client.
Unfortunately, the company’s performance tanked before we received final offers, so we took the deal off the market. But the client implemented several of the ideas that had surfaced during these visits, and within two years doubled its profits. We just received 24 offers at much higher prices.
That said, most unsolicited calls come from people who are a waste of time. You should ask a couple key questions before divulging any information.
The first is: “Are you a buyer or an agent?” There are many “bird dogs” who are simply trying to find business owners willing to engage in a discussion of selling their business. They then pass your name to private equity firms with the hope of receiving a referral fee in the event something materializes.
There is also no shortage of underemployed business brokers on fishing expeditions trying to find prospective clients. Before returning a call or responding to a letter, visit the web site of the caller and see where they went to school, who their previous employers were, and what deals they have done. If there are no deals listed on their web site, there is a reason.
If the caller says they are a principal, not an agent, the next question should be: “Are you a funded sponsor?” If you ask this question, you will achieve instant credibility by simply knowing the jargon of the private equity world. A “funded sponsor” is simply a term for a real private equity firm, one with a “fund” available to consummate an acquisition.
There are many individuals masquerading as private equity firms which are not. “Search funds” are individuals looking for a job with equity. Often these individuals are recent MBAs who have parents with rich friends who “commit” to put up the equity for a deal if the young lad or lass sniffs out a decent deal. In most cases they have never done a deal before; you don’t want to be their guinea pig.
A “fund-less sponsor” is similar; they may have done some deals, but they are making offers to buy businesses with no capital in place to consummate an acquisition without raising money.
The parties most worthwhile in getting to know are the private equity firms that have funds and a track record of successfully buying businesses.
Of course, with about 5,000 such funds out there, the chances that the one who is calling you is the best cultural fit willing to pay the highest price are slim to none. So while you don’t want to sell without running a professionally-managed sale process, it never hurts to talk to potential buyers in the meantime. You might actually learn something.
Michael Jacobs, Author
Michael Jacobs is the CEO of Jacobs Capital and Professor of the Practice of Finance at The University of North Carolina at Chapel Hill. He's the author of several books and a certified speaker.
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