The challenges of selling to strategic buyers

Edited by Admin

In most situations, sellers are interested in finding a buyer who is a good strategic fit for their business for two main reasons. Firstly, all passionate business owners want to see their businesses grow after exit, and secondly, strategic buyers are often willing to pay a premium if synergies are to be achieved from the acquisition. While this may seem like the best exit option available, it does have its own unique challenges.

 

Strategic buyers can often be experienced purchasers and will often try to control the sale process and disrupt negotiations to eliminate any leverage that sellers have in the negotiation process. Strategic buyers conduct a detailed due diligence process, which is why such acquisitions are often long and tedious. Sellers will spend a considerable amount of time organizing documents for due diligence and answering buyers’ questions. This could distract the buyer from running the business and can affect performance which in turn could be leveraged by the buyer to discount the sale price.

 

Additionally, it is important for the seller to maintain credibility with the buyer. Overstating projections or understating risks could unnecessarily stretch the process or even lead to the deal falling through, so it is best to maintain transparency with serious buyers. A big challenge with this is maintaining confidentiality. Knowledge of a potential sale can raise doubts regarding job security in the minds of employees, who in turn may spill information to competitors to hedge their own risks. In such situations, it is beneficial to communicate with employees and assure them of future job security. Sellers can incentivize key employees by offering ‘stay bonuses’ to keep employees from quitting.