Proper Buyer Marketing & Pre-Qualification

In the world of mergers and acquisitions (M&A), success hinges on the ability to connect the right buyers with the right sellers. The lack of access that business owners have to a pool of qualified buyers is significant, making it difficult for an owner to get the highest possible price for their company. A professional M&A advisor has access to market data and a large competitive pool of buyers to help owners maximize their exit price. An M&A advisor will take a significant burden off the owner by facilitating all the key activities of the transaction and to allow the owner to stay focused on running the business.

There are different ways to reach out to potential buyers:

• Posting the business on major business-for-sale websites in a non-divulging fashion, never releasing the company’s identity.
• Extracting relevant buyers out of a proprietary database and reaching out via direct email campaign; professional M&A advisors invest significant time in cultivating these relationships and tracking their investment criteria, so they know exactly who is interested in what types of investments and which ones are good partners for a seller.
• Identifying potential buyers or competitors through additional market research and contacting them via more traditional means like mailers and email campaigns.

Once an investor responds to an advertisement and requests additional information, the buyer will need to provide a set of pre-qualification documents containing a Non-Disclosure Agreement, an Investor Profile & Management Experience as well as sufficient proof of funds.

Buyers who refuse to complete the pre-qualification documents are usually not serious buyers and there is no reason to waste time with them. Any investor who is looking to buy a business should expect to be pre-qualified and should have the information readily available.

Why is the buyer pre-qualification so important?

• Enhanced Confidentiality: By not adequately screening investors and disclosing the seller’s identity to a wide number of investors, confidentiality can be breached with negative impact on the business.
• Time and Resource Efficiency: Only buyers who have a clear interest and the ability to execute a deal should receive the Confidential Memorandum; usually one third of pre-qualified investors will ask for an introduction with the seller; if buyers aren’t sufficiently screened by the advisor, the seller will be pulled into a time-consuming process instead of focusing on running the business.
• Higher Success Rate: By only engaging qualified and genuinely interested buyers, the probability of completing the deal increases significantly.

The advisor will review the information provided with focus on the following areas:

• Financial Capacity: The M&A advisor must rigorously assess a buyer’s financial capability to complete the transaction; does the buyer have sufficient cash/assets available for the down payment and working capital? Is there sufficient collateral for bank or seller financing? Has the buyer already received pre-approval from a lender? Does the buyer have investors supporting the acquisition and if so, did they provide sufficient documentation?
• Management/Industry Experience: Does the buyer have any experience in the industry or have they held any managerial positions in the past? Are they planning to run the business themselves or do they intend to keep the current management? These questions are especially important when bank financing is involved;
• Acquisition Experience: has the buyer made any offers or managed any acquisitions in the past and do they understand the process from pre-qualification to closing?

Only a successfully pre-qualified buyer will receive the Confidential Memorandum – disclosing the seller’s identity and providing detailed information about the business. If the buyer shows further interest, the advisor will schedule an initial call, and if the buyer seems to be a good fit, the advisor will schedule a call/meeting with the seller to discuss the operation. Subsequently, if the buyer is ready to move forward with the acquisition, they will issue an offer to purchase or letter of intent.

If multiple offers are being made by different investors, the advisor will prepare an overview for the business owner to outline the differences between the offers (qualitative and quantitative) and support the seller to choose the best offer.

In sum, the proper buyer pre-qualification is absolutely crucial in saving time for the seller, to avoid any compromising of the business’ confidentiality and to increase the likelihood of successfully completing a deal.