Motivated Investors – How To Find Them

Closing the deal is a significant challenge business owners face once they’ve made the decision to sell their business. Some business owners still hope somebody will walk through their door and make an offer they cannot refuse. While in some instances, inflated purchase prices might exist amongst public companies or with strategic acquisitions, but rarely will a buyer overpay for a business. In order to get a deal done, it will take a seller who is committed to sell and a buyer who is truly motivated to make a purchase.

So how do you find a truly motivated investor?

For a business owner, it is advisable to rely on a professional M&A advisor to identify buyers to support the owner in the transfer of the business as business owners have usually little experience and time to devote to find the right buyer. Prior to identifying and qualifying buyers, the asking price for the business has to be established through an independent, 3^rd party business valuation, after which the advisor will prepare the business for sale.

Once the business has been posted on major business-for-sale websites in a confidential fashion, never releasing the company name or location, the M&A advisor will receive email or phone inquiries from potential buyers.

Another way to find potential investors is by extracting buyers who had shown interest in a similar business in the past out of a proprietary database or by identifying competitors and then creating USPS and email campaigns and reach out to see if there is interest in an acquisition.

How do you find out if any of these buyers who respond to the advertisements are truly interested?

The first step to differentiate between buyers on a fishing expedition or competitors trying to gain knowledge about their peers and a truly interested party, is to rigorously pre-qualify any potential buyer. Buyer pre-qualification documents should include:

• A Non-Disclosure Agreement (protecting the seller’s confidential information)
• An Investor Profile & Management Experience (important to get bank financing in place)
• A Financial/Bank Statement (confirmation that sufficient funds are available for the acquisition)

Buyers who refuse to complete the pre-qualification documents are usually not serious buyers or don’t have the funds in place. There is no reason to give them access to confidential information about the business. Any investor who is seriously looking to buy a business should expect to be pre-qualified and shouldn’t have an issue to provide the requested information.

“Over the years we have seen a steady increase of buy-side inquiries, “says Karin Neumann, Managing Director in the Buy-side Department of A Neumann & Associates, a leading Mergers & Acquisitions and business brokerage advisory firm, headquartered in New Jersey, “however, less than 50% of inquirers respond after sending the initial inquiry and of the remaining 50% only half are willing to provide sufficient documentation to get pre-qualified. The fastest way to find highly motivated buyers is to reach out to our pool of more than 1,000 pre-qualified buyers in our proprietary database.”

Only after a successful pre-qualification should the Confidential Memorandum – disclosing company name and location – and 3^rd party independent valuation be sent to the buyer. Once the buyer has reviewed the Confidential Memorandum and decided that there is further interest in the business, he will ask for a buyer/seller introduction.

The M&A advisor should first schedule an initial call to find out if the buyer seems to be a good fit to avoid time spent with unnecessary buyer/seller introductions. If there is continued interest, the advisor will schedule a call/meeting with the business owner to discuss the operation; if requested, the advisor will provide additional financial information and set up a site visit for the investor. Subsequently, if the buyer is ready to move forward with the acquisition, he will issue an offer to purchase or letter of intent. True motivation is shown on the buyer’s side by sending an escrow check together with the offer to purchase.

In sum, identifying truly motivated buyers will help to avoid wasting time for the seller, risking a breach of confidentiality and to get to a successful closing!