Posted on: April 2nd, 2019
Good deals are hard to come by and certainly do not grow on trees. Within any deal market, there are only a handful of good deals, despite everybody’s subjective views and tendency to over rate the quality of their own deal flow. When putting a deal together, most buyers focus on the measurable things – the financials, the operational stats. Smart buyers also focus on less data driven areas such as management quality, strategy and market position. All these areas form a holistic view of a company, pinpointing its strengths, weaknesses and opportunities for growth. Throughout the interaction between buyer and seller, a lot of information is shared, and behavior exhibited that falls outside the scope of traditional diligence requests. Within these soft edges of the diligence process exist enlightening clues about the quality of the deal and the company. For savvy buyers able to listen for these clues, awaits the key to good deal doing. These clues fall under the heading of intangibles, such as company culture, employee commitment and owner motivation. Often, the attitude of the seller and the way he treats his employees is huge tell-tale sign of quality. The reason for the exit is also a big signal. What the seller is not telling you in response to a question may be more important than the stock answer you are getting. Deal background such as prior attempts to sell and previous experience the seller has had with buying and selling a business are also very relevant. To simplify this exercise for you, here are the Attract Capital 5 signs of a good deal:
- Seller is selling for the right reasons – Many sellers play the cycle and look to cash out when business is strong, and valuations are high. Sellers that are older – (over 60) that have owned their businesses for decades, are usually less sensitive to cyclical selling than they are to get the right buyer. These sellers usually want a buyer who will preserve what they’ve built to continue to provide for their long-time employees. –
- Companies with strong employee commitment– This is a bit hard to discern, but employees and their commitment level is highly determinative of long-term success. Companies that consistently outperform have figured out a way to attract and retain the best people.
- Motivated & Relationship-based Seller– Motivated sellers prioritize the deal process and make sure their people are responding to requests. They treat this exit like a high-level project and seek to build relationships with their buyers. The relationship outreach helps smooth out any buyer uncertainty throughout the long and unpredictable process.
- Companies showing strong performance – Smart sellers know that selling into strength removes a lot of deal risk from the equation. Leaving some meat on the bone for the buyer motivates them to close faster.
- Seller Deal Pull – Along the way, buyers need to feel the pull of the seller in their direction. It can be in the form of verbal encouragement, or non-verbal process behavior. Whatever it is, they need to feel some reinforcement from the seller.