Bidding War

How to Trigger an M&A Bidding War When Selling Your Business

How To Trigger A Bidding War For Your Business

Cody Weaver , CONTRIBUTOR

I write about improving the value of your business. Opinions expressed by Forbes Contributors are their own.

One of the toughest things about selling your business is attracting an acquisition offer and creating a bidding war without putting a metaphorical “FOR SALE” sign on your company’s front lawn. My day job is running a company called Business Acqusition Experts, where we help companies build corporate value through exit planning. With the end goal of taking the businesses to market and monetizing their equity aka “their life’s hard work” through a sale to a stratetegic or financial buyer. One of the key tenets of our methodology is the idea that, to get a premium valuation, you need buyers coming to you, not the other way around.

John Dorsey

How do you get buyers keen to make an offer and lure them into A Bidding War without telling them you’re for sale? If you sound too keen to sell, a buyer will assume there is something wrong with your company. At the same time, if you appear standoffish, an acquirer may assume approaching you would be a waste of their time.

 

 

The Magic Letter

In 2001, John Dorsey started an safety consulting firm called Safety One Advisors, Inc in Newark, New Jersey. Dorsey grew Safety One to be a successful, consulting practice. He was an active marketer and sponsored local sports teams and events, making him a well-known figure in the area.

In 2016, Dorsey received an unsolicited offer to buy his firm from a competitor he respected. As Dorsey told me when I spoke to him in our initial conversation, he was not planning to sell, but warmed to the idea as he imagined moving on to a new chapter in his life. When the deal fell through because of a financing glitch on the buyer’s side, Dorsey was disappointed. He had become emotionally committed to selling, but no longer had a buyer. What’s more, he operated in an area and a niche industry where they were only a handful of competitors, so getting the word out he was interested in selling without spooking his clients and employees would be tricky.

Dorsey eventually hired us and together we surveyed the landscape of competitors and strategic buyer’s operating within his market vertical. And identified a couple of firms that he respected and we sent the owner’s a letter. The note simply stated that Dorsey had received an unsolicited offer to buy his firm which he had been seriously considering; before making any final decisions, we wanted to know if the other owner’s would also be interested in making a bid.

The letter sets the right tone for a few reasons:

  1. It’s truthful. He had been seriously considering an offer
  2. It doesn’t sound desperate. Dorsey had been sought out
  3. It’s non-committal. It doesn’t say he is for sale, or that he is going to sell for certain, merely that he was seriously considering an offer

In the end, several of the  recipient’s  of Dorsey’s letter were interested in expanding and simultaneously made offers which put us in a prime position for a bidding war. One buyer eventually won the bidding war and acquired Safety One for 1.25 gross revenue—most of which was paid at closing with a few smaller payments due over time. Professional services firms like Safety One usually sell with a significant portion of the consideration in an earn-out, a bonus scheme that puts a portion of the sale price at risk and it only becomes available if the seller stays on and helps the buyer achieve their goals in the future. With our guidance, Dorsey was also able to avoid an earn-out in part because the buyer knew—thanks to the letter —his firm was in demand, giving Dorsey a little more leverage to get the terms he wanted.

If you’re keen to sell, consider a variation of Dorsey’s letter, which strikes the right tone between confidence and openness.

For more information about How to get more $$$ for your business, Please read this article as well: http://acquisitionspro.com/high-business-sale-price/

 

 

 

If you’re considering selling your business in the future, please feel free to reach out to us for a free no-obligation consulation. www.acquisitionspro.com