One of the biggest mistakes owners make in selling their business is being lured into a private or one-sided deal.
Private deals occur when an acquirer convinces an owner to sell their business without creating a competitive marketplace. From an owner’s perspective, these offers can be flattering, and you might be wondering if it’s time to sell, tempted by the prospect of an easier exit.
The reality can be different and at great cost.
Acquirers running a private deal know they don’t have any competition and tend to make weaker offers with more punitive terms because they know that nobody else is bidding.
don’t get caught out
Many owners become the target of a private deal without even knowing they’ve been duped. First, someone from the acquiring business approaches the owner, complimenting them on their business.
Meetings are held, and high-level financials are exchanged. It appears everything is running smoothly.
Soon, the owner starts going down a path that is difficult to come back from….
the scales of information
The reality of this process can be that while parties in a private deal get to know each other, owners often share information with the acquirer which leaves them in a compromised negotiation position.
The interactions seem like friendly exchanges between two well-intentioned parties, but a lot of owners end up revealing key facts in these discussions that end up being used against them when negotiations become serious.
don’t reveal too much
The more emotionally invested business owners become towards selling, the more resources they invest in the process and the more time they spend thinking—perhaps dreaming—of what they will do after they have sold their business.
This seems like the perfect opportunity, however, if you reveal too much too early with the acquirer, the ability to negotiate effectively is compromised.
When you’re negotiating with only one acquirer, the deal can lack the competitive tension to keep buyers ‘honest’ with their offers and can lead to a swift completion without proper consideration.
avoiding private deals
Savvy sellers avoid the proprietary deal by creating a competitive process for their business.
Putting your business on the market so it’s available to all buyers, is the best scenario. This will test the true intentions of the party that made the initial approach. They may walk away and if that happens then it is fair to question if their intentions were genuine or if they were simply just fishing for information about your business.
find a third-party
If you still intend to pursue negotiations with a single party then at the very least you should be engaging with a third party, like an experienced business sale advisor, to facilitate the negotiation for you. This evens the playing field by involving an independent party who is working on your behalf to achieve the best available deal.
Keeping you one step removed also means you can objectively assess any forthcoming offer, as you haven’t been party to the inevitable emotions driven by the negotiation process.
we’re here to help!
Unsolicited offers to buy businesses happen more regularly than you think and should not be dismissed without consideration, however, it is essential to protect your interests and take steps to ensure you get the best deal possible.
To learn more about building a more valuable business, preparing for a sale and the sale process please reach out to us at broking@businessdepot.com.au or give us a call on 1300BDEPOT.
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general advice disclaimer
The information provided on this website is a brief overview and does not constitute any type of advice. We endeavour to ensure that the information provided is accurate however information may become outdated as legislation, policies, regulations and other considerations constantly change. Individuals must not rely on this information to make a financial, investment or legal decision. Please consult with an appropriate professional before making any decision.