Even in a tight money market, good businesses get a lot of attention. If you want to make sure your bid rises above the rest, here are some things you should consider.
Put yourself in the seller’s shoes. You may have bought and sold several companies, but most owners go through this process just once in a lifetime. Propose a deal that achieves not just your goals, but the seller’s too. Be respectful of the owner’s time and their concern for their legacy. Prepare to be reasonable and fair; a lopsided deal that you “win” will leave a bad taste in the owner’s mouth. It might also affect your customer relationships and your ability to work with the staff after the deal closes. (More about that later.)
Stay informed about the market and companies like the one you’re hoping to buy. When I’m asked about what kind of buyers I want to work with, my first response is “realistic.” That means they understand trends in the industry and the market, they keep up with comparables, and know how to read financials. When they put in a bid, it’s based on real numbers and research.
Developing relationships with brokers with industry experience is a great way to keep up on what’s happening and find companies that might be a good fit for you. Having relationships in the industry can help you hear about deals before they hit the listings and give you important information on how to work well with the seller. They’ll also have resources and advice that will help you avoid pitfalls and costly mistakes.
Experienced brokers will also have relationships with lenders and other professionals who know the industry’s business model and know how to move quickly and efficiently to get a deal done. You won’t have to start from square one with a lender or spend time educating them before they consider your application.
Have your financing set up ahead of time. If you’re a cash buyer, you’re going to be one of the most competitive buyers in the pack. But if you need financing, it’s best to get your lender on board early. You can pre-qualify for the bid you plan to make, making sure all your financial statements are in order and ready for the diligence process. This saves a lot of time during negotiations, and sellers want to close as quickly as possible. If you’re planning on SBA funding, you’ll need to plan for extra time and more work during the loan approval process.
Sellers want both a fast deal and a clean one; if you’re the buyer who can get them out of the business quickly with all their money, you’re probably the buyer of choice. If at all possible, try to stay away from seller financing, scheduled payouts, and other more complex deals. Sellers are selling because they want to remove risk from their lives, so keep that in mind as you figure out what you can afford to pay.
A word about your initial offer: I personally believe in offering a fair price based on the true value of the company. Some brokers and buyers put in an initial offer that “leaves room for negotiation.” The most successful buyers don’t play games or try to drag out negotiations over small issues. Deals are built on trust, and putting in a fair and transparent offer the first time will establish you as a straight dealer.
Have a plan for dealing with employees after the sale. Most owners care deeply about how the sale will affect their employees, many of whom might have been with the company for years. The employees are the only parties to this deal with no say in how it goes. Even if you’re a great owner with industry experience, change brings uncertainty and fear, which can affect retention and productivity.
Being able to present the owner – and eventually, the staff – with a plan for the transition will alleviate a lot of concerns. Being upfront about what will change and what will stay the same will position you as trustworthy and go a long way toward a smooth and drama-free transition. Prepare a list of benefits that new ownership will bring: upgrades in equipment or service, plans for growth and expansion, training, and benefits – let the team know that change can be change for the better.
If I can help you connect with companies that might be a good fit for you, click here.
About the author: Patrick Lange
Patrick Lange is an experienced HVAC-specific business broker with Business Modification Group based in Horseshoe Beach, Florida. He has a unique background in financial planning and has even owned an HVAC business himself. This makes him well-suited to working with some of the most successful HVAC business owners in the country. Specializing in companies with 1-10 million dollars in revenue, he maintains a network of buyers and sellers in the industry. He has sold more HVAC businesses than any other broker in the United States over the last three years and is currently the President of the Business Brokers of Florida (North Florida District.)