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  • Best Practices for Finding a Buyer for a Business

    Apr 4, 2017

    The best environment to sell a business is a dynamic marketplace where numerous potential buyers are exposed to the business and multiple parties compete to complete the acquisition.   Creation of this type of business opportunity marketplace requires experience, knowledge, and a desire from buyers to complete transactions facilitated by a mergers & acquisitions firm.   IBA, the Pacific Northwest’s premier business brokerage firm since 1975, has a reputation in the mergers & acquisitions marketplace for being a company business buyers like to work with due to the environment of full disclosure we create for evaluating acquisition opportunities, the “best practices” we employ when facilitating negotiations related to the purchase & sale of privately held companies, and the fact the values placed on the businesses we represent are traditionally justified by CPA’s, business appraisers, and banks.

    A business owner looking to sell their business will want to evaluate the marketing programs employed by a business broker to locate potential buyers prior to engaging the intermediary to represent them in the sale.  The following are the five marketing programs employed at IBA on behalf of our clients:

    1. Buyer Database – The presence of a “willing & able” buyer when a business enters the market benefits both the seller and the business broker. To create the opportunity for this to exist for IBA clients, IBA maintains a buyer database filled with individuals, companies, private equity firms, and nonprofit entities looking to purchase businesses.   Parties come to IBA weekly to complete the necessary paperwork to participate in our buyer database program.  They do this because of the quality of the privately held companies IBA represents for sale, the professionalism of our deal facilitation, and most importantly to get the first opportunity to evaluate new businesses listed for sale with IBA prior to the companies being publicly advertised.  Each participant in our buyer database has a confidentiality agreement on file and has defined the types of businesses they are interested in acquiring by industry, transaction size, and geographic location.  All information provided to IBA is held in strict confidence.  Historically, 20 – 25% of companies represented for sale by IBA will be purchased by a buyer in our buyer database.   Most business brokerage firms do not maintain a buyer database because they do not want to dedicate the time, energy, and resources to interviewing potential business buyers who they do not have an immediate match for in a transaction and/or do not facilitate a volume of transactions to warrant maintenance of this resource.
    2. Online Marketing – The marketing venue that generates the maximum buyer exposure for businesses for sale is the Internet. There is a broad spectrum of venues businesses can be advertised for sale ranging from well trafficked websites with excellent SEO and organic search placement to subscription services that source deals for their clients.   A knowledgeable business brokerage firm will be aware of web traffic data for the top performing websites and advertise their client’s businesses for sale in those venues.   A seller engaging an intermediary to sell their business should evaluate the quality of the verbiage and pictures employed to advertise companies for sale by the business broker prior to selecting them as a marketing agent.  It is also important to understand the screening process employed to maintain confidentiality and financially qualify potential buyers prior to disbursing specific information about a client’s business.  Many online advertising venues for businesses, e.g., bizbuysell.com, www.bizquest.com, etc., have multiple tiers of advertising available to business brokerage firms.   For example, www.bizbuysell.com, the top trafficked business for sale website, has three tiers of business broker affiliations (Elite, Premium, & General) and advertising (Showcase Plus, Showcase Choice, & Basic).  The firms that spend the most money on advertising get premium placement for their clients on the website.   It is our recommendation that a firm be selected by a business owner looking to sell their company that will advertise the business aggressively for premium placement to insure the maximum number of eyes review the business opportunity.  The last thing a business owner desiring to retire wants is to have their product placed on display on the bottom shelf and the back of the store.
    3. Network Marketing – The mergers & acquisitions market is often referred to as a hidden marketplace. It is a hidden marketplace because it is commonly in the best interest of the seller and the business not to have the information a business is for sale enter the public domain due to the potential detrimental impact on customers, employees, and vendors.  An experienced business broker with proper knowledge & systems can generally protect this information until the seller is ready to announce the sale.  However, behind the public domain exists a secret world of professionals that are actively engaged in this marketplace.   IBA is contacted regularly by business brokers, attorneys, accountants, consultants, and bankers working with clients that are looking for acquisition opportunities.   An experienced business broker will network regularly with these individuals and frequently put transactions together by connecting appropriate parties.  One assumption that should not be made is that all business brokers will work collaboratively with the other business brokers in their area.  Unfortunately, there are business brokers that will not share commissions like is done in real estate with brokers that represent buyers in the business opportunity marketplace.   This action eliminates potential buyers looking at a specific business to the detriment of the client.  I strongly discourage signing a representation agreement with a firm to sell a business that does not work collaboratively with other firms and share commissions with buyer brokers.   This display of greed & self-interest is counter to the best interest of the client and achievement of the goal of a timely sale of the business at the best possible market value.
    4. Multiple Listing Service – Many business brokers hold real estate licenses to allow for the comprehensive representation of clients who own both the business & real estate.   All IBA business brokers hold real estate licenses in one or more states.   One benefit of being a licensed real estate professional is participation in the commercial and/or residential multiple listing service (MLS).  The MLS is a poor place to list a business for sale if it is desired to keep the sale confidential.   However, it is a good place to list businesses for sale where confidentiality is not an issue.  Businesses frequently advertised & sold employing a multiple listing service include motels, hotels, campgrounds, RV parks, gas stations, convenience stores, and some types of restaurants.  If the sale of one of these types of businesses is desired, a seller should select a broker with a real estate license who can advertise their business for sale in the multiple listing service.
    5. Strategic Buyers – Creation of an environment of confidentiality in the sale of their business is frequently a priority for business sellers.  This environment is easier to maintain if a business broker can serve as a gatekeeper of information.   However, in many sales it is possible to identify a potential buyer or group of buyers and market directly to them to generate interest.   This effort frequently results in a positive outcome.  It also requires knowledge, experience, and skill because it can also result in confidential information being conveyed to a competitor, supplier, or customer.  I encourage developing a strategic plan and having an experienced representative before exploring this sale option.

    The best environment to sell a business is a dynamic marketplace where numerous potential buyers are exposed to the business and multiple parties compete to complete the acquisition.   The first step toward creating this environment is to expose the opportunity to the maximum number of potential buyers.  This is best achieved by employing a knowledgeable, experienced business broker with a multiple tier marketing program that includes contacting known buyers in the market, advertising comprehensively online, and networking with professionals actively engaged in the mergers & acquisitions marketplace.

    IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family owned businesses.  IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.

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