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Questions Buyers Ask and What to Expect from Buyers
Transcript
Hello and welcome to M&A, Murderous and Accusations. The good, the bad and the ugly of selling your business. We dig into what you need to know and how not to kill the sale of your business. Now here's our host Rick J Krebs, mergers and acquisitions advisor.
Hello and welcome to the podcast. This is Rick J. Krebs, M&A advisor, M&A Cowboy coming to you from the mountains of Utah today. So I'm excited about the show. We got a lot of good information to share with you today. So the title of this show is the questions buyers ask what to expect. Now I'm going to start with a story. This is my baby carriage story. So this is a mistake that I see a lot of sellers make when the buyers are asking questions. So let's pretend there's a woman, a single mother, walking her baby stroller through the park one day in a beautiful sunny day. Another woman comes up and she looks in the baby carriage and looks at that baby and tells a. Woman oh, what? A beautiful little baby you have, that is such a beautiful baby. I like. I like the baby's hat. Where did you get the baby's hat? And the mother is just so excited that this woman is a complimentary of her baby, that she goes on to tell her about the hat and about the baby and about the birth of the baby and about the doctor's name, and gives details about the hospital. And then the store where she bought the hat and the weather that day and what else she bought and other deals they had and. On and on and on and. On and all the women wanted to know. Where did she buy the hat so she could buy one for her grandchild? She just needed a, you know, a 15 second answer. And I tell you this story because this is the way that sellers sometimes will act to the buyers and it's very, very off putting. It's like getting a drink of water from the fire. When a buyer asks a question to you, be direct and be concise and only answer the question. Don't go on and on about everything. That doesn't even matter because it puts buyers off and in an attempt to disclose you over disclose and. Fires just don't like it, and they will walk away and I've seen them walk away. Good buyers walk away from a good business because they just couldn't deal with the way the sellers answered questions. Think about that a little bit as we think about the questions that the buyers are going to ask you so. One common question is what keeps. You up at night? You know what are your biggest worries about owning this business? What are? Things that you take home. And you're concerned about and you talk to your wife about and you're worried about. Another one is why are you selling and from a selling perspective that doesn't seem like it matters, right? You're selling, you're just, it doesn't really matter, but buyers will ask that they'll want to know why you're so. They'll want to know about the transition. How long are you willing to stay and work in the business and you want to, in the spirit of this, again using the dating example, you know you want to show that you're willing to help them through a transition and give them adequate time to do what they need to do to make sure that you're. You're setting them up for success and not for failure. I say it's a handoff, not a sellout, and so they'll ask you about the transition and about your plans post closing if you're remaining. If you're going to train, if you're retiring soon and you want to just be direct and honest about. That they will often ask about employees and, uh, the tenure of employees. They'll ask about key management. How they're compensated? They won't get into the specific details of every employee, but expect to hear questions about employees when a buyer asks for a meeting or they start having questions. What they really want to know. The underlying question underneath everything else is, can we trust? And so they're looking for that. They want to like you. They want a business partner that they can work with and like, and they want the business philosophies to align. So they'll ask you about your culture, about things that you do that are just with your company and how you treat your employees. You know your bonus structure and that. Sort of thing. And the other thing they're going to ask about is customers. They're going to look for stickiness. They're going to look for customer contracts, customer concentration. So expect some detailed questions about your customer. And if there are questions that you don't want to answer, or they're a little sticky and you're not sure about answering, go through these with your broker. Sit down, do a practice session and talk about the £900 gorilla in the living room, and they're also going to want to know about your products or your services. What makes you unique? What makes you stand out? What makes you competitive and what competitive advantages do you have? What edges do you have? Do you have proprietary software? Do you have, you know, an end with other people? And then other people do not have these types of questions, so customers, products and services employees? Financials, of course, that's a given. They're going to ask you about financials typically on the first or second date. They don't get into the details of financials. You're going to want to know about revenue trends. You're going to want to know about profitability, EBITDA trends. If you had a down year, why was that? They're going to want to know about your life plans after closing. Do you know what you're going to do? Have you thought about that? So there's two different types of buyers. There's a financial buyer and there's a strategic buyer. Higher financial buyers typically will buy based strictly on the financials. They're going to want to know and dig into the numbers. Strategic buyers are buying based on the opportunity. They're buying this because they know what they can do with it and where they can take it and how it's going to grow. Here's another question they often ask, and that is, is there anything else that we should know about the business? Anything that we're not asking? That you think we should know? Buyers like the signal that the sellers are willing. To carry or role equity. So they might ask you about that. Are you willing to call to do a seller note for a portion? If you feel. Like you're backed into a corner, just blame your broker so you know what I'm going to have to talk. To so and so. About it or say, you know, I haven't thought about that, but let me get back to you. So just because they ask you a question doesn't mean you have to answer the question immediately. Another thing you're going to ask you is what is important to you. What would you like to see in a buyer? What are some things that you would like to see the buyer do with the company or with their baby? And they want the right partner. You can also ask them questions. We have another podcast on questions that you should ask the buyers. So those are the main things that I see in in most every business meeting that we have with buyers are going to ask about these things and don't be surprised if they kind of catch you off guard with a question or two. We got another podcast on zingers. And listen to that one. I'll talk to you about how to answer those. Those are seniors usually don't come until there's an in person meeting or after. But on the initial first couple of dates, you know you're just getting to know each other. It's all fun and games. You don't ask too deep of questions. Now that we've talked about questions that buyers ask, let's talk about what not to do. Baby carriage. Don't over answer questions. I cannot emphasize that enough. Do not over answer questions. Don't give it buyer and drink from a fire hose. Give him a little bit and it's better to just give him a couple of droplets. Let him still be thirsty. And come back for more. Do not air your dirty laundry. If there are past things that don't matter, don't go on and on about them. We had a situation recently where we had some sellers and I was on the call with them and they had something they didn't want me to know about, but they weren't quite sure to bring it up. And so anyway, they just kind of stammered a little bit and I sense it. So I'm like, OK guys, what's going? But because they brought it up with me and we could talk about it, we could make a strategy for how to answer that question and how to kind of spin it into a positive thing. So feel free to be completely transparent with your broker and with your advisors. Let them know what's going on. Because I say this over and over again. That things are better disclosed and they are discovered. Especially negative ones and. If they're negative, you get them. Out and you just tell them straight up. This is what it is. This is what happened and this is how we dealt with it and this is our pivot. This is how we're better because of it. These men and women understand that business is hard and there are things that happened. There's COVID. No, you know, no one saw that one coming. Right, but. The business went. On so, they get it. So don't be afraid of disclosing. We call it the hair on the deal with things that are just unique, that that they need to know about. The other thing is I would say never do is lie. If you lie. Buyers go away. We were selling an oil field company years ago and we had disclosed up front that they had. There was a related party transaction. They owned this little pump company on the side and the buyers agents hadn't told the buyer about it. And when he learned about it, he was concerned about it. And I explained to him. Reading the emails, you know that this was 100% disclosed right up front and once I did that, the guy was OK. But if I had not disclosed. That up front. And I deceived him about it. That buyer would have walked, and he's about a three and a half million dollar transaction, right? So that lie would have cost him three and a half million dollars. So never lie. It's OK if you don't know the answer to think about it. And we talked about the pause on another. Podcast, but it's all right to think about it and to talk to your broker about it first. Call a time out. You know, I had a transaction we're working on right now. We're under a letter of intent. And you know, they just lost one of their biggest customers and was a shock. What are we doing? We're setting up a call with the buyer and the seller. And in fact, we're doing it tonight, you know? And I'm like, you have to disclose it. Have to tell. Them what's going on? So they don't think there's any funny business? And so, uh. And those are the main things that I would say not to do. If you do these things and you follow my advice and you significantly, you will increase the likelihood of your deal going through and we joke in the business saying that these transactions have to unwind three turns before they close and they do. You know, there's unforeseen obstacles that pop up. There's always things that no one considered or no one thought would be a big deal. And they become a big deal. But you work through them, you work together. Just like with the engagement. You know, you have a fiancé, you're going to work through your problems. Because you're committed to each other and you trust the other person. So I see this in due diligence, where initially the buyers are, you know, pretty much lifting up every rock. They're looking in every nook and cranny for anything they can find, and as the transaction progresses, it goes and the level of trust increases. I see them in the end, sign off on things, and in the beginning they never would have. Because they don't trust the seller. In in the beginning. So this is a process and it takes time and it's a relationship and it's a relationship built on trust that takes experience and takes, you know, weathering storms together and you can get through it. So thanks for tuning in today. Listen to our podcast. This is Rick Jake Krebs. The M and a cowboy saying so long and act soon.
Thank you for attending our podcast. We invite you to join us for future episodes of M&A, murders and accusations. The good, the bad and the ugly of selling your business. You can also visit us at www.bsalesgroup.com or e-mail Rick directly at Rick@bsalesgroup.com.