There are several very good reasons why you want your advisor to generate five or more offers.
Full Market Exposure and Representation
All too often a seller gets an offer or maybe two offers and they get inappropriately excited about that. A successful offering is one that achieves maximum market exposure. That should include the following three dimensions:
- Seller suggested potential buyers
- Buyers that advisor has a quality working relationship with
- Full market national offering
It is essential and prudent to start with the largest possible pool of buyers.
Competitive Bidding (Bidding War)
The goal is always to achieve a stimulated group of buyers. That is the essence of being a market maker. A short or passive group of buyers will not lead to the most favorable possible financial outcome.
Risk of Default
Buyers drop out all the time for a wide list of reasons.
- Don’t like what they learn during due diligence
- Conclude it is not a good fit
- Find a better opportunity
- Can’t achieve financing
- Decide not to acquire at all
It is always prudent to have a 1 a 1A and a 1B to ensure achieving a closing.
Qualitative Objectives
Having come from a Fortune 500 Earnings per Share environment I was really caught off guard when my clients did not take the highest offer.
I quickly learned that high quality sellers (people) are not focused only on money. They really care about their employees. They recognize and appreciate that they did not create all of their company value by themselves. Yes, they might have taken the original risk and funded the commencement of the company. Then they got a lot of help from their high-quality employees.
High quality sellers want to make certain that their employees will be highly respected and well taken care of by the incoming buyer and their cultural style. Many sellers are also focused on how well their customers and suppliers will be taken care of as well as how well their legacy will be respected and maintained.
Another huge qualitative attribute that sellers consider is “what is the likelihood of success of the buyer?” They do not want someone to come in and run their company into the ground in 18 months.
They want to feel very good about selling to a specific buyer for all of these reasons.
That is why it is so important to get at least five (5) offers. Then the seller can evaluate the quantitative and qualitative pros and cons of each offer to determine the best fit.
I always tell my clients that they will not make the buyer selection decision with their head.
They will make it with their gut. They will use the same judgement, intuition and experience that they used to develop and operate their company.
A high-quality advisor should not recommend an offer. The advisor should share the pros and cons that they see through their M&A lens of each offer and then step out of the way.
The final decision clearly belongs to the seller. It is critically important that they exclusively make that decision so that they never experience “seller’s remorse” because someone talked them into taking a specific offer.
A lot of brokers will only be focused on how they can get the highest fee. That means that they are not inclined to value the qualitative attributes that are often times very important to the seller.
Having five (5) offers to choose from assures the seller that their advisor did a successful job of representing their company to the market.