Punching Out! Your Baby’s Ugly, Now Get Over it (How to Work with Buyers)


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Here’s a scenario: An owner has gone to market and is starting to get feedback from buyers, and shockingly, not everyone appreciates the hard work and achievements that went into the business. Buyers may not understand the business, or they may be trying to position things for a low offer. In any case, it is important to know how to work with buyers.

Don’t take it personally, it’s just business

Even the most admired businesses, such as Apple and IBM, have issues, so it is likely that your shop has a number of imperfections. Although it is difficult to hear criticism, remember that it is part of the selling process. Some buyers will point out issues just to see how the owner reacts, to see if the owner is reasonable or understands the problems. Because every business has issues, it is best to identify those issues up front, and to point out how these are actually opportunities for the buyer.

Preparing properly means being told the pros and cons of your business

Your advisors will tell you before going to market that your baby is ugly, so it will be less of a shock when buyers do. Please do not kill the messenger, as the advisors are doing you a favor. It is better that the advisor points out the issues and helps you to prepare for these, rather than hearing it from a buyer.

Broker/Investment Banker as a Buffer

Your advisor will hear from dozens or even hundreds of buyers that your baby’s ugly, and he should act as a buffer to soften the blow of those comments. Not every business is for everyone; in fact, most businesses are attractive to a fairly small number of serious buyers. The advisor may hear that the business is too small or too large; has too much customer concentration or too many customers; does not have enough technology or is too focused on high-end tech; is too reliant on the owner or that the owner is absent, etc. The advisor should not shield the owner too much from buyer’s comments, and should pass along the comments that can help prepare the owner for future conversations with potential buyers.

Typically, the advisor will accumulate questions and comments from buyers and present those to the owner in an organized fashion. This gives the owner time to review the questions, answer them carefully, and provide consistent answers. Prior to holding conference calls or visits with buyers, it is best to prepare with a dry run through the frequently asked questions. While talking with buyers, avoid sensitive subjects such as politics, religion, and family/personal issues, and leave price negotiation to your advisor. Try to answer questions openly, honestly, and quickly, without going off on tangents.

During the process, we try to focus on buyers who are positive, easy to work with, and have strategic reasons for acquiring the company. Buyers feel the same way; they want to work with sellers who are open, honest, trustworthy, reasonable, and who understand the process.

After an owner signs a letter of intent and enters into due diligence with a buyer, often the buyer hires outside advisors to perform various audits and inspections. This usually means that the owner, and the company’s management, if they are involved, must answer the same questions multiple times. Also, some of the questions get into minutia, such as, “your pen and pencil budget was 1.1% of sales last year, yet you are forecasting this to go up to 1.2% next year, please explain.”  Try not to get too exasperated at these questions; the buyer’s team is just doing their job. Of course, due diligence can go too far, but we try to address those issues at the beginning of due diligence.

One of the common mistakes that owners make is to over-negotiate and/or ask for too much. Once a letter of intent is signed, unless the company has suddenly received a major piece of new business or some other hugely positive news comes in, it is difficult to significantly change the terms of the deal. Similarly, unless the buyer discovers major problems that were not disclosed, or the business drops dramatically while in due diligence, it is hard for an owner to accept a lower offer, or worse terms from the buyer.

Finally, one of the best ways to prevent your baby from being called ugly is to prepare in advance: Work with the deal team to prepare for the sale process, spruce up the website and facility, and prepare yourself for what can be a comprehensive, yet rewarding experience.

Don’t forget: “The time to repair the roof is when the sun is shining.” — John F. Kennedy 

Tom Kastner is a senior M&A advisor for Woodbridge International, a global investment bank, and the president of GP Ventures, a tech-focused M&A advisory firm. To contact Kastner, click here.

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