Bridging the Way BayState Business Brokers blog

Too Many Buyers? When Having so Much Interest Can Be a Problem

by | Jun 6, 2024

It’s an interesting business brokerage market right now with:

  • Time from going to market to securing a letter of intent (LOI) is shorter.
  • Lenders are aggressively seeking to lend.
  • Buyers are in abundance.

So, what’s the problem?

The problem is the buyer market is getting bogged down with what we call search funds. Many buyers operating through a search fund have limited professional experience and capital and are relying on investors. We are especially seeing this in the lower middle market where the number of buyers expressing interest in a business listing and signing an NDA is growing exponentially.

While it’s great to see the level of interest, not all buyers are credible buyers, and it takes experienced business brokers to be able to property vet and complete the due diligence to present quality prospective buyers to the seller.

Imagine…

If you are currently selling or thinking of selling your business, imagine the situation where you have your business on the market while maintaining ‘normal’ day to day operations, maintaining confidentiality that your business is on the market. Your responsibilities have grown from leading and managing to working with a business broker. In your ‘spare’ time you are evaluating prospective buyers. While exciting, this can be a time-consuming process and we all know as business owners, time is valuable.

The Importance of Experience

For a novice business broker, they are going to be thrilled to have generated so much interest in your business and will be asking for your time and attention to share with you the vast number of interested parties to work together to vet.

In contrast, an experienced business broker is going to implement their proven vetting process to complete due diligence on each buyer to develop a select subset of credible prospective buyers to review with you. Only the vetted prospective buyers will be presented, saving you valuable time. The initial vetting process will not be a joint effort (seller and business broker) but led by an experienced business broker who is adept at navigating the aggressive tactics that buyers are employing to find a viable business to buy.

Search funds are a relatively new phenomenon, and, in many cases, they come in with an aggressively high offer to win the LOI, and then during the diligence process they either retrade or back out. In many cases, they don’t get their investors involved until after the business owner has spent significant time and resources with them and, at that point, the investors may or may not back a deal.

An experienced business broker saves you time and hassle; they are not wowed by volume of buyers or even the highest offer but remain focused on the quality of prospective buyers and know how to complete the due diligence to heavily vet buyers to remove the ‘noise’. You end up with high-quality, vetted, prospective buyers and in many cases, multiple letters of intent to choose from. Price is only one factor in an LOI. Structure, buyer experience and potential to close are just as important.

Conclusion

As a business owner, you know how important it is to surround yourself with experts who will guide and advise you and be a sounding board whom you trust. If you are considering selling your business, make sure you have an experienced and proven business broker to include in this trusted circle.

The business brokerage market changes like the weather in New England. The dynamics of the buy side is aggressive and a bit mad right now. Don’t get caught up in the madness. Have a trusted business broker by your side who will navigate the hurdles and get you to the finish line.

Contact us.

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