Buyer Qualification: Quantity vs. Quality
While it’s important to identify as many potential buyers as possible to ensure a competitive sale environment, it’s equally important to ensure that all the potential buyers the M&A advisor plans to contact are qualified.
A qualified buyer is one that:
- Has a strategic interest in doing the deal and
- The financial ability to close the deal
Buyers who don’t have a strategic reason to buy a business, such as a competitor whose business is very similar, are unlikely to value the business as highly as those who can gain access to new industries, markets, or products.
The Role Of The M&A Advisor In Buyer Qualification
Business owners are unlikely to have the experience, skills, and resources to qualify prospective buyers. This is an area where they need to rely on the advisor. A cursory look at the buyer is not enough; the advisor’s initial efforts should include some or all of the following:
- Reviewing the buyer’s website for an indication of the markets served, the size of the company, and the potential for a strategic acquisition
- Reviewing financial information, when available (i.e. public companies)
- Checking if there have been indications of interest in pursuing acquisitions
- Reviewing recent acquisitions
- Requesting specific financial information, such as a statement of net worth, if the buyer is an individual
There are firms that specialize in researching information about companies and keeping it in databases. The advisor should use these sources as well.
If research shows that the buyer is qualified, the M&A advisor should call a decision-maker at the prospective company to ask if they are interested in a potential acquisition. The identity of the company for sale is not disclosed, just the industry and the size of the deal. If there is interest, the potential buyer’s name goes on the list of buyers who will be sent a blind teaser.