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When Your Company's on the Market, Play It Close to the Vest
Excerpts from How to Sell Your Business — and get what you want!

When selling your business, making it easy for the buyer to learn about your company isn't your only concern. Some sellers do well by leaving a few hurdles for buyers. If all the information is readily available, it inevitably goes to some people who are only casually interested. If you have an attractive business and are wary of revealing too much in early talks -- before you know the character and motives of a suitor -- you can dribble information out in stages.

Start with strategic buyers, those looking for a business fit. Not only can they pay more than others, they can make an initial determination of their interest by looking at product literature. Financial statements can be summarized orally for them. Some sellers might question how much more information they want to provide before meeting someone.

If the business is to be sold in an auction, you need an offering memorandum -- called a "book." This lists reasons why the business is attractive. It provides some history, a description of the industry, products, facilities, management, competition, and the outlook. It analyzes sales by product line and usually reveals profit margins by product category. Schedules of financial details are included. It may tell too much. You don't mind giving that to someone who buys the business, but what about all the other people who have seen it?

Some businesses are in demand, and sell quickly. Others are mundane, and it takes months to find a buyer. The offering memorandum has data that reveals when it was written. It can be rewritten, but in practice that seldom happens. Buyers can see how long the business has been on the market by the age of the offering memorandum.

BUSINESS PLAN VS. OFFERING MEMORANDUM. A business plan can substitute for an offering memorandum. Companies raise venture capital by showing potential investors their business plans. Readers expect a business plan to be prepared by management; readers expect offering memoranda to be written by agents.

A business plan is especially appropriate for someone unwilling to list a company for sale openly. An offering memorandum suggests you expect to sell the business within the next several months. A business plan sends no such message, and it does not have to be prepared in secret. If a buyer picks up a business plan six months after it was written, it has no special significance. This could be supplemented by a short letter with some key facts not in the plan, such as details of ownership.

CONFIDENTIALITY AGREEMENTS. Confidentiality agreements are usual before information is provided. (Consider whether you want one signed before your name is revealed.) The protection provided is not watertight, but large organizations are wary of litigation. You probably want the confidentiality agreement to provide that, if no business combination occurs, the suitor will not offer a job to any of your employees for a period of two years. Employees in large corporations are sometimes looking for businesses to buy themselves, while masquerading as having interest on behalf of their companies. Asking such people to sign a confidentiality agreement on behalf of their employer usually requires review by colleagues, thus discouraging such deception.

Be wary even after a confidentiality agreement has been signed. If providing a plant tour would reveal sensitive information, have a least one meeting with a suitor away from your facility. Get a sense of the motives of the people, the price they would pay, and the odds of completing a transaction with this party before revealing your secrets.

UNIONS. For some buyers this is a threshold issue. If you have a union, make it known early to avoid wasting time with suitors who would not close: a buyer with no unions might be unwilling to change this status.

MEETINGS. When, where and who to meet -- that's all part of your negotiating position. Buyer usually comes to seller to see the business. Buyers want to know and see everything, but it may not suit you to acquiesce immediately to all their requests. Protecting your business must take precedence over accommodating a suitor. If you have proprietary technology or systems or very sensitive employees, you may not want anyone touring your facility until you have a strong sense of where the talks might lead. You could meet a suitor for breakfast or lunch at some mutually convenient spot first. If the buyer is making a special trip of hundreds or thousands of miles, you can hardly suggest you limit your talks to a nearby coffee shop. For such people, you may agree to meet at an industry convention or in some major city where you both have other business. Or you could visit the buyer.

If your lawyer is your confidant, you might consider having the first meeting at his office, but many of these exploratory meetings are fruitless, and it will be expensive if the lawyer is in at the outset for each suitor. And the atmosphere of a lawyer's office is not conducive to quick rapport.

Buyers like to meet the management team, not just the owner. Resist the urge -- often quite strong -- to please the buyer. Don't introduce buyers to your key employees until you feel confident that a deal is likely to be made.

QUALIFIED BUYER. Visitors should be qualified in advance. You should be given background information (an annual report or other literature), and it should be clear that they have the necessary resources or a demonstrated record of being able to finance acquisitions. Buyers, too, want to avoid spending money on fruitless tasks, so they'll be alert as to how many others are interested in the business -- a reason to make them aware at the outset that you are talking to other unnamed prospective buyers.

Many buyers plan to use other people's money. Don't be reticent. Ask about the funding. Ask how much equity the buyers would invest, and how much they plan to borrow. Where is the equity coming from? Does the buyer plan to produce a document describing your business and then send it to various financing sources? Understand the process -- bankers may be coming to ask questions about your business, and you might be the principal salesman for the financing. Ask about other transactions this buyer has concluded. Learn how prior acquisitions were financed.

VISIT BUYER. At the first meeting, buyers are trying to find out if the owner will stay and manage the business -- and they are judging how well the relationship might work. You are making similar assessments, but yours are more difficult. The first visitor is unlikely to be your main contact if you sell to this organization. If you are invited to visit the buyer's office, accept. Here you will meet more senior people, who do not go on exploratory trips. You will get a better understanding of the organization, and why they are interested in your business -- and an initial grasp of how committed they are to the purchase.

  • Buyers will focus on certain elements of your business. And this is where you must focus on presenting facts and judgments in the best possible light.
  • Historical financial statements are the foundation for presenting the earning power. If yours understate the earnings, carefully tabulate and explain the adjustments to show what the earnings would be under different ownership.
  • Buyers will have visceral views of the characteristics -- trends, size, growth, threats -- of your industry. Since they may well be wrong, you must present in your business plan, your view of the potential, and the basis for your position.
  • Your competitive advantage -- your strengths versus your competitors' -- will be scrutinized. Don't neglect to make your case.
  • If you leave gaps in the story, be assured that the buyer will fill them. Present a complete picture to control the first impressions.

Colin Gabriel ( is a business broker in Westport, Conn.

Reprinted with permission from
How to Sell Your Business -- and get what you want!
Colin Gabriel
Copyright 1998, Colin Gabriel
Published by Gwent Press Inc., Westport, CT
Adapted with permission of the author and Gwent Press.
Title available from bookstores, online retailers, and by calling 1-800-964-1902
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