A Neumann & Associates, LLC is a New Jersey-based Mergers & Acquisitions and Business Brokerage firm. In this piece, A Neumann & Associates discusses the importance of investor pre-qualifications.
Once a marketing plan for the sale of a business has been implemented, business investors will respond to advertising and request additional information. Many investors are not right for a seller and – if not identified early – will waste a lot of time, in turn delaying a sale. Ultimately, different types of investors will be responsive to be individually prequalified:
- Strategic (Corporate) Buyers: This group includes companies from within the industry looking for synergies; these buyers can be suppliers, customers, competitors, or companies which could benefit from expanding into a new market segment or using established distribution channels for their own products.
- Financial Buyers: This group includes groups such as private equity firms which make acquisitions as investments. These these buyers are usually looking to improve, grow their business and for sell for a profit within a few years.
- Individual Investors: These people are looking to buy a company to run/oversee themselves; This is more common in smaller transactions.
The goal is to reach a maximum of pre-qualified investors to increase leverage for the seller!
With multiple buyers contacting the M&A advisor, it’s crucial to find out the pre-qualifications of the buyer. It’s also important to determine how interested the buyer is, if the buyer is not in a position to purchase a business or if the buyer is just on a “fishing expedition.”
- Confidentiality: The more buyers know that a business is for sale, the harder it is to maintain confidentiality. By not adequately screening investors, confidentiality can be breached with negative impact on the business due to a loss of clients and employees
- Time spent: It is essential that only buyers who have a clear interest and the ability to execute a deal receive the Confidential Memorandum. Usually one third of pre-qualified investors will ask for an introduction with the business owner after reviewing the Confidential Memorandum. If buyers aren’t sufficiently screened by the advisor, the owner will be pulled into a time-consuming process instead of focusing on running the business.
In sum, the proper buyer pre-qualification is absolutely crucial so that no time goes to waste for the seller and the M&A advisor, as well as avoiding any compromising of the business’ confidentiality.
A Neumann & Associates, LLC is a professional mergers & acquisitions and business brokerage firm having assisted business owners and buyers in the business valuation and business transfer process through its affiliations for the past 30 years. With an A+ Better Business Bureau rating, the company has senior trusted professionals with a deep knowledge based in multiple field offices along the East Coast and has performed hundreds of business valuations in its history. The firm’s competitive transaction fees are based on successfully completing transactions. For more information, please contact A Neumann & Associates at 732-872-6777 or Info@NeumannAssociates.com