Your company has been approached unexpectedly by a serious buyer, and you are considering what to do. You are interested in selling, but how can you ensure the best possible outcome?

Selling a company without an auction is common. However, negotiating with a single buyer is more challenging than dealing with multiple companies simultaneously. Competition keeps buyers humble. When working with only one, you might not even create the illusion of competition. If the buyer’s terms are not favorable and no mutual understanding is reached, it could kill the deal. Walking away could be an expensive decision.

I know that having an advisor can be beneficial, even in the situation described in the title. However, some might think, “Why pay an advisor when the buyer is already at the door?” or “A cheap lawyer is enough; I can handle these deals myself.”

If you do decide to proceed with a single buyer, there are significant risks involved: offers may not materialize, the buyer may change their mind during the process, the buyer might just disappear, the terms of the deal could worsen, etc. An advisor’s role is to maintain pressure to close the deal, create the illusion of competition, keep the buyer “honest,” and negotiate the best possible terms, price, and structure.

In the case of a single buyer, an advisor can also help maximize value. I have personal experience with this from several projects. There are two types of buyers: financial and strategic. (More on this topic at article: When is it the right time to sell). Understanding the buyer’s motives and leveraging them during negotiations enables the best possible outcome. The structure of the deal is as important as the price tag. For example, would you prefer 6 million in cash or, with a 10 million valuation, 3 million in cash, a 3 million promissory note, and a 4 million earn-out (additional purchase price)?

It is possible to search for more potential buyers while negotiating with a single buyer. However, this is difficult unless you have enough time available. Time is the buyer’s tool to secure the best possible deal for themselves. An advisor can be an invaluable assistant in negotiating not only the price but also the structure of the deal. Help is definitely needed as the process advances to the due diligence phase (discussed at Article Buyer Beware) and in preparing documentation together with a lawyer. The buyer almost always wants to secure key employees, and their retention becomes a condition for completing the deal. Experience is beneficial in negotiating their “packages.”

The sell-side advisor's role is to represent the seller's best interests. Buyers' and sellers' experience with business arrangements often varies, and the advisor's role is to protect their client’s interests and navigate the deal to completion. Often, the seller(s) have to work together with the buyer after the sale. Negotiating in a way that maintains good relations requires the skills that come with experience. Business arrangements and operations always take more time than anyone has anticipated. The seller must take care of their business during the process. An advisor allows management more time to ensure the target company is in good condition.

By Vesa Walldén