Meeting someone for the first time can be awkward. Sometimes you don’t know what to say and, especially in a new situation, how to act or what questions to ask.
Meeting a potential buyer is no different than meeting anyone else except the stakes are higher. So what is the best way to handle that situation? What are the important questions to ask? How do you know if someone is right to take the next step with?
Your first interaction with a potential buyer is often a delicate dance, with both sides trying to figure out whether a potential deal is one worth spending time, money, and effort on. By asking the right questions and listening closely to their answers, you can start to build an idea of what a buyer is offering and how their offer might fit in with your goals.
An introductory call is just that: the ability to ask introductory questions and determine a good fit before things get too complicated or in-depth. Take this time to find out more about the potential acquirer’s intentions, size, culture, and a potential deal structure. Some great questions to ask right off the bat could be:
• Why are you looking at my company specifically? How did you find us?
• What’s your acquisition history? Have you acquired in my industry before?
• What do you generally do with the companies you acquire? Are you looking to integrate them into a large platform company or continue to run them independently?
• What are you looking for in an ideal transaction or acquisition?
• What values are important to you? How do you think about your culture?
These are all great icebreaker questions and low-hanging fruit for any potential buyer. If you’re dealing with a private equity firm or other professional acquirer, they’ll be able to tell you these answers quickly. If you’re dealing with a strategic acquirer, these will likely prompt a deeper conversation about your respective businesses and how you run them.
Now that you have a basic understanding of your potential partner, it’s important to start to understand what they are offering and how that fits in with future goals for your business, your life, and your financial well-being. Some great questions in this vein could be:
• How do you generally structure your acquisitions? Do you generally offer all cash deals?
• What happens to the management teams of the companies you buy? Do you have a general policy or is it on a case-by-case basis?
• What would happen to my employees after the business is sold?
• What is the general timeline you see when you’re looking at an acquisition like this?
• What are the next steps?
That should be enough questions for a thirty minute call and getting the answers to those will help provide a lot of clarity and insight into whether they are a decent fit. Even if not, you’ll still learn a ton about what potential acquirers are looking for and how you can structure your business to meet their requirements when you are ready to sell.
Buyers are also going to use this introductory call to gauge whether you’re a good fit for them. Oftentimes, they will have stringent deal criteria and will be able to tell you quickly if they are interested or not. Some of the questions you can expect are:
• Where are you all in terms of revenue and profitability?
• What has growth looked like over the past couple years?
• Who are your customers? Are they large or small? How many do you have? Any customer concentration? What does retention look like?
• What does the revenue breakdown look like? Is it mostly one-time or mostly recurring?
• What does competition look like in the industry? Who are the biggest players in your geography and how do you compete with them?
• What does pricing look like? How do you charge customers?
• What is your ideal structure for a deal?
• Do you want to stay with the business after it is sold? Why are you selling?
Buyers use these questions to not only gauge a potential fit but also to see if you're motivated to sell your company and someone they can trust to handle a smooth transition.
The conversation about price and valuation will always come up at some point during your negotiation. It is much better to set expectations early so you don’t waste your time if your expectations are mismatched. Use the first call to set a rough estimate of what everyone is looking for.
If you have a number in your head that is “your number,” it’s okay to make that known on the first call. It’s also totally fine to ask “what multiples do you generally look to pay for companies?” Likewise, don’t be surprised to be asked about your own valuation expectations. You obviously don’t have to agree on a specific or even general number but setting expectations and guidelines will save a lot of headache when it comes to negotiations down the road.
First dates in business can be awkward, but they don’t have to be! If you come prepared to the conversation with questions to ask and can anticipate the questions that they bring, things will go a lot smoother.
Building a rapport is important but finding a good fit is even more so. By asking the right questions, you can do both.
And no matter what you do, it won't be as awkward as this: