Buyer’s Expectation of an Intermediary (Part 1 of 2)

Buyer’s Expectation of an Intermediary (Part 1 of 2)

This article begins a new series we’ll call Intermediary’s Corner with articles specifically targeting those involved with middle market businesses. 

Role of an intermediary

The following is how many potential buyers like to work with intermediaries.

1.  Assess owner’s goal

While an intermediary might think he or she knows the owner’s goal in selling, often the intermediary may not understand the nuances involved. A superior intermediary will have thoughtfully explored the owner’s acceptable options with a sense of what type of transaction is most desirable for that particular owner.  The options available to business owners are numerous, such as, a recapitalization, family succession buyout, management buyout, sale to strategic buyer, etc.

For example, consider an owner who would like to sell or liquidate his investment, but would also like his daughter to remain in the company with the additional benefit of participating in some way in the company’s future growth.  An intermediary who has not taken the time to understand the owner’s real goal may go along his merry way looking for a corporate buyer who will pay the highest price in cash, even if the acquirer’s desire is to close down the plant and move the business elsewhere.  This solution and approach by the intermediary is obviously not the goal of the owner.

An intermediary’s role is to spend the necessary time to really understand the owner’s goals, because an intermediary who does not do so risks the chance of wasting the buyer’s valuable time, tarnishing his or her own reputation, and worst of all, closing a deal that the owner later regrets.

 2. Learn about the company

Just as a doctor learns about his or her patient by giving tests for blood pressure, respiratory system, etc., an intermediary should learn about the “health” of the company being sold by addressing the following basic issues:

  • ownership
  • customers
  • nature of the business
  • competitors
  • management
  • financials
  • product lines
  • contingent liabilities

In addition to the above items, the intermediary should also investigate:

  • the company’s working capital requirement,
  • the company’s strengths and weaknesses,
  • its annual capital expenditures,
  • its competitive advantages,
  • how it markets its products or services,
  • whether it factors its account receivables,
  • whether it leases its equipment,
  • etc.

The intermediary should not only be well- informed, but should also ask the owner the right questions in order to be thorough and comprehensive.

Once an intermediary has a clear understanding of the owner’s goal for selling with all its nuances as well as a comprehensive picture of the business being placed on the market, he or she is then ready to explain the owner’s options, educate the owner on the process, and discuss a value range. These three topics will be discussed in more detail in our next blog posting.

To be continued…