We will discuss the steps to buying a company and how the initial contact plays a key role. In this article we will find out why the initial contact is so important and we’ll analyse some techniques on how to buy a business obtaining the best price.
How to communicate with the seller
The best candidate when buying a company is the business owner who doesn’t know that he wants to sell his business yet. Why? Because nobody is interested in buying his company. Therefore competition doesn’t exist.
When calling a business owner, try something like “Good morning Mr. Smith, this is Enrique Quemada speaking. I am interested in buying a company in your sector and the Industry Association told me that you are very successful, that is why I thought you could give some interesting suggestions. Could I have the chance to meet you?” If he likes the idea, he is potentially intersted in selling his company. If not, he will tell you who you can try to reach out to.
PRO TIP: Don’t start the conversation asking “Are you interested in selling your business?”. It would sound intrusive and you will not get the information you want!
Verify if the business owner is interested in selling his business
The initial contact is one of the most important steps to buying a company and it requires the ability to understand as fast as possible if the business owner you are talking to is really interested in selling his company. We participated in many mandates investing time and money and eventually finding out that was no seller.
Many times the price you will be asked to pay for a company may be too excessive. That means the business owner doesn’t want to sell his business. In other cases he doesn’t want to accept the real value of his company. Moreover, he may not be sure about the idea of leaving his company behind yet. In this case, the key question is: “Do you need to sell your company?” If the answer is yes, you can eventually succeed and acquire it.
If the company is very interesting and the business owner wants to sell, don’t let the price scares you. There is a long negotiation process and the business owner will eventually accept the real value. Many evaluations are based on emotions, that is why you need to let business owners understand how to calculate a fair value.
When a business owner decides to spend some money, you may be certain he wants to sell his company. For example, contracting advisors is a really good sign.
Try a “ONEtoONE” negotiation
If you want to obtain the best price, you need the business owner to only negotiate with you. That could be a milestone for you to succeed in your goal.
One to one negotiation will be frequent when companies you are negotiating with are small or in crisis. For this reason, those companies are not attractive enough for private equity firms and many potential strategic buyers wouldn’t waste their time negotiating these transactions.
In the case you want to buy a leader company, a competitive process will start and there will be many interested buyers like you. As consequence, the price will raise due to treacherous bidding.