- 14 September 2022
- Michael McGrath
How to Sell a Business: Lesson #2
What to do when a 500-pound Gorilla knocks on your door?
We established in my last blog that selling your business is likely to involve a major mismatch in terms of the scale and size of the likely buyer and that getting in the ring with them by yourself and without a clear strategy, might not work out so well.
Increasingly in Australia we are seeing metaphorical Gorillas directly approaching potential sellers. What’s wrong with that you might ask? Nothing in principle, however, if a vendor is seeking to maximise the price and terms for what has often been their life’s work, then we simply don’t like those odds!
So, what are the odds that the most strategic and best buyer has knocked on your door? We think very long.
This kind of approach at first appears like an attractive option, like being asked out on date, however I speak to many owners, who after entertaining such approaches with no professional help, or sometimes with help (more on that in a later lesson), waste literally months and months dancing to the tune of the Gorilla, only to end up with nothing coming of it. This can not only be exhausting but can leave an owner feeling like he has been taken advantage of. Often the business has suffered through the lack of focus resulting from the distraction of dancing to the tune of the Gorilla.
Firstly, if the Gorilla has knocked on your door, they have probably knocked on many others. They are also likely to be running a process. The adage is true, “buy slow and sell fast.” Despite the early protestations to the contrary, buyers move slowly and cautiously seeking more and more information which they suggest are essential to allow them to move forward. Much of these requests in our experience are unnecessary or premature.
As a vendor there are two things to bear in mind:
Is the information I am being asked for reasonable and necessary to allow the party to make a written indicative offer in a timely manner?
Once I have provided such information (which should exclude anything commercially sensitive) ask for an indicative offer in writing (subject to due diligence and contract).
Beware of Premature Due Diligence
Until the Gorilla provides you with an offer in writing you have nothing. Words are cheap. This written offer, covering both the consideration and the accompanying terms will allow you to assess the opportunity and depending on how attractive it is; a basis from which you can negotiate further or not!
Lesson #2 Get to an offer in writing quickly and efficiently.
The biggest mistake we see is when sellers, managing the process themselves, continue to engage with the Gorilla without a clear idea of the process. Buyers tend to keep asking for an endless series of documentation, much of which is having to be specially prepared. Often, we find that much of what is being asked for, pre an indicative offer, would be better handled in early due diligence. It’s just not necessary to provide proof on matters that can be made “subject-to” whatever price and terms are being suggested.
I’ve had an approach! What now?
If you are currently prepared to entertain an approach from a Gorilla, or you have just had one, why not engage the services of somebody who knows where the other Gorillas live and run your own process? We have figured out a great way to do this whilst maintaining your anonymity. By all means entertain an approach but at the same time improve the odds in your favour.
If you’ve got a gorilla at the door, talk to me or one of my Partners.
Good luck and stay safe!
Read Lesson #1 here:
https://www.oasispartners.com.au/2021/06/11/what-to-do-when-approached-by-a-buyer/