How to Buy A Business – Be Prepared for the Competition

When you are making an offer on a business, don’t be surprised to find that there are other bidders.  In many of our business sales, we are receiving multiple offers.    This is a common occurrence in sales of larger businesses by investment bankers and the buyers are familiar with how to handle the situation.  Many individual buyers that we deal with are not.

First of all, don’t drop out.  If you drop out, you won’t buy the business.  Competition is a fact of life.  When a buyer complains about the competition, I ask them if they would rather buy a business that no one else wants.  Ask yourself what bothers you about the process so you can better handle it.  Are you concerned about being used to get a better offer from another buyer?  Is the loss of control of the process bothering you?  As the only buyer, you have more control.  The power shifts to the seller when there are multiple bidders.  If this is a good business that you would like to buy, learn how to navigate this different terrain.  Here are some tips on how to do so.

• Find out the process that the seller and business broker are using.  Is this a formal auction where all “best and final” offers are submitted at the same time? Will an LOI be negotiated with the one, “best” offer?   Or, is the seller acting on each offer as it is received and accepting the first offer that is acceptable?   Or, are they negotiating with several buyers who made the best offers?  Or, is some other process being used?  You need to know as much as you can about the rules of the game.
• Find out what is important to the seller.  The decision about which offer to accept is rarely only about who offers the best price.  What other terms are important to the seller?  Third party financing?  How long the seller will have to stay on after the closing?  Speed and certainty of closing?  Keeping the employees?  Find out what is important to the seller and create your offer with these in mind.
• Stick to the terms of the offer you present.  Nothing kills a deal faster than asking for a lower price or other revised terms.  Unless you find clear reasons to do so in your due diligence, and this information was not disclosed earlier, stick to the deal you negotiate.
• Be a reasonable, personable, person.  Nice guys don’t finish last; jerks do in this process.  All things being equal, it’s more likely a seller will sell to someone they like rather than someone they dislike.  They are also more likely to be helpful to them after the closing to be successful with the business.
• Move quickly.  In most deals, speed and certainty of closing is important to a seller.  By moving quickly, you show a seller that you are more likely to move quickly to close the deal.  Accordingly, have the deadlines in your offer, such as for due diligence or obtaining financing, be as short as you can work with.  The best way to move quickly is to be prepared by the time you make the offer.  Line up your attorney and accountant.  Know the financing sources you will go to.  Have other needed services lined up.

As you can see, dealing with a situation where there are multiple buyers is more complicated for a buyer.  Understand that the seller’s business broker represents the seller.  In this situation, you may wish to use an experienced buyer’s broker to handle the process for you.