How to Evaluate Potential Buyers to Expedite an Acquisition

Do you know which buyers are worth inviting to the negotiating table? Your inbox might explode with interest when you first list, but few of those conversations will go very far. You might waste hours playing email ping-pong without ever receiving a Letter of Intent (LOI).

You could enlist a broker to sift for gold among the pebbles of interest, but you’ll improve your chances even further by learning how to evaluate buyers and understand the difference between those that’ll go the distance and those who are a waste of time. 

Start With a Phone Call

Back in 1990, BT, the UK’s largest telecoms company, launched an ad campaign that generated an extra £5 billion in revenue and quickly became part of the nation’s lexicon. The slogan was simple: “It’s good to talk.”

Those four words echo every salesperson’s strategy in the world. When you ask someone for something, it’s much better to do so in person, or if not, over the phone. It’s much harder to recognize and respond to social cues over email or webchat. 

Speak to potential buyers. In as little as fifteen minutes you’ll know if you like them, if they’re serious, and have set clear expectations on both sides without any misunderstandings that could stall an acquisition or derail it entirely. 

Investigate Their Background

Let’s be honest: people love talking about ourselves. Buyers included. Get them to open about themselves, their experience, past acquisitions, and goals for the future. Search their LinkedIn and other social media profiles to understand what motivates them. 

Look for evidence of successful acquisitions, a trail of happy founders. What’s their acquisition strategy? And if your startup is to be their first acquisition, it’s critical to understand why they want to Acquire you and that they’ve got the means to do so. 

What Are Their Acquisition Goals?

A buyer with a plan is a serious buyer. A buyer with experience is a helpful buyer. But a buyer with a plan, experience, and goals that align with yours is the ideal buyer. Of course, there’s a whole spectrum in between of potentially successful acquisitions, but goals are important. 

For example, you probably don’t want to sell to someone who Acquires for kudos alone. Equally, if the buyer plans to fire your staff and dissolve your brand, you lose your legacy, and potentially, the respect of your teams. Move on if your goals misalign. 

Can They Achieve Them?

The buyer might have big plans for your startup. They might envision, with astonishing clarity and confidence, rapid growth and multiplying profits. But do they have the expertise to achieve their aims? If not, you risk the deal stalling upon discovery of anything that upsets their vision.

And think of the effect of a wildly positive but incompetent leader on your employees and customers. It’s your reputation on the line if the buyer runs your startup into the ground. Not all buyers are wise to their faults so root these out early before you go further into negotiations. 

Are They a Good Culture Fit?

Ask twenty entrepreneurs for their “secret ingredient” and you’ll get twenty different answers. It’s not what led to their success that’s important, necessarily, but how they created the conditions for that success through cultivating the right culture within their businesses.  

Culture impacts everything from morale to productivity to motivation. When times get tough, it can make or break startups. If you’ve bred a culture of positivity, support, and collaboration, imagine the fallout of a buyer who’s cynical, argumentative, and quick to point blame. 

Before you sprint into negotiations, ask the buyer about their values, beliefs, and leadership style. What does startup culture mean to them? This should give you insight into whether they’d fit within your organization and do your legacy, customers, and employees proud. 

Do They Have the Capital to Acquire?

No, it’s not rude to ask, “How would you pay for this acquisition should we move forwards?” In fact, get it out of the way early. If they respond with a suggested deal structure, first, you know they’re serious, and second, you can filter them out if the structure is unattractive.  

Also, your background research should have indicated whether they can raise funds. The higher your asking price, the more evidence you need. On the lower end, it’s harder to assess their financial standing but don’t be afraid to ask tough questions or even do a credit check. 

What Does the Buyer Expect of You?

Mismatched skill-sets between you and the buyer needn’t mean a failed acquisition. Perhaps their expertise fills a need you’ve been unable to meet. That said, consider what might happen if you sold a startup whose core product was an API to a social media influencer.

Unless this influencer was also a developer, or had hired one, you might have to stay on a year or two post-acquisition. At the very least, it’d be one heck of a laborious handover. Before you rush into negotiations, therefore, ensure you know what happens after the acquisition closes. 

Just because you’re anxious to sell doesn’t mean you should entertain every buyer that expresses interest. Evaluate their commitment, preparedness, and flexibility to save a lot of trouble later on. Yes, your buyer pool will shrink, but you’ll eat a lot better fishing from a small pond with a few healthy fish than an ocean full of time-wasters.  

Now you know how to evaluate buyers, list your startup now and start some serious acquisition conversations.

For more helpful acquisition articles and videos, check out our blog.

The content on this site is not intended to provide legal, financial, or M&A advice. It is for information purposes only, and any links provided are for your convenience. Please seek the services of an M&A professional before entering into any M&A transaction. It is not Acquire’s intention to solicit or interfere with any established relationship you may have with any M&A professional. 

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