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Developing and handling competitive environments when selling a business – 1

Mailshot – Jan 23rd 2013

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We at Swiss Mergers and Acquisitions have a proven track record in successfully buying and selling companies across a wide range of differing sectors and sizes. We have founded businesses ourselves so we know the pressures on owners when it comes to sell a business. Whether you have clients who are a small family-run business, an International company or company adviser, we are always interested in discussing their M and A needs.

Developing and handling competitive environments

A competitive environment of more than one buyer is extremely helpful in determining the true value of the business. They can also be used to drive the price/maximise the deal. The key to exploiting this position is research and business intelligence which will lead you to contact as many serious parties as you can.
Many agents talk about controlled auctions where you request bids by a prescribed dates. Those whose initial bids are acceptable are allowed access to management and records and told a higher offer is expected with an invitation to make their ‘best offer’. This can be time consuming and at worst make the deal go at the slowest pace. The idea of bids is fine to attract sellers but in reality is it practical? The alternative is the ‘in isolation technique’.

Handling a competitive environment with ‘in isolation’ technique

  • We recommend considering and negotiating each offer in isolation. This is very important, and avoids the grass may be greener on the next offer /viewing syndrome.

  • Why in isolation? It is human nature to ask ‘what if’. I.e. what if the next buyer might pay more….. The problem with this is where do you draw the line? By considering each offer in isolation you are able to examine whether the deal on the table would work.

  • You can even ‘in principle’ accept (verbally) the in isolation offer, with the very clear caveat that you will be advising other parties that we have an offer that would be acceptable with the invitation to match it. This is still competitive and better still creates momentum.

  • Negotiating and ‘in principle’ accepting an offer in isolation subject to notifying other parties allows you to go at the pace of the fastest party not having to get round to speak to everyone, wait for all bids to come in etc.

  • The problem with waiting for all bids is that you go at the pace of the slowest (often the least motivated buyer). This frustrates the fast serious parties. They lose interest and the deal never happens.

  • The isolation tactic also reminds the seller that it is important to go for the best all round deal, not necessarily the highest. The best competitor for any buyer is the vendor. Buyers know vendors may choose to keep a business. This is a far better message to send and ones sellers may accept.

  • Avoid the blatant ‘up your bid’ confrontations and work with the buyer to build a deal if you can.

  • This spirit works and buyers often end up paying more because they feel you have worked to create a consensus rather than played against them. It is often forgotton that both Buyer and Seller needs to come out of a deal a winner

  • Which offer to accept? (i.e Which horse to back?)

    The decision on which offer to accept may depend on a number of variables. It may be:

  • The highest offer.

  • The greatest amount payable on completion.

  • The best structure.

  • The best consultancy/ongoing package.

  • The one that you believe WILL complete the deal.

  • The one that retains the integrity of the business after sale.

  • See our guide on HANDLING NEGOTIATIONS, TAX AND DEAL STRUCTURES: © Handling negotiations, tax and deal structures
  • If you have any clients who are thinking of selling a business or are in the process of selling a business, please email julian.foulger@swissmanda.com
    or telephone +41 (0) 41 360 26 78 or mobile +41 (0) 79 845 28 53 for a confidential discussion.

     

    Swiss Mergers & Acquisitions, Rigiblick, Spissenstrasse 82, 6045 Meggen, Switzerland

     

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