Often misunderstood at the mainstreet and middle market segments of business sales is the leveraging of the element of scarcity. When large companies with EBITDA over $1MM dollars go to market for sale they often are sold in an auction format. No price set and buyers who need to grow and fit strategically submit offers and terms. The leverage and control is the sellers. Now there are obviously some games and tactics used by buyers to give sellers haircuts prior to close but….leverage remains the sellers. The reason private bankers and M&A professionals do this is to create competition and drive the principle of Scarcity into the process.
Conversely, when small business’s or middle market companies go to market they often have a price. And frankly, there are lots of good reasons as to why that is so which can be talked about later. However, Scarcity as a principle can and should still be leveraged in the deal. There are a variety of methods to do this. First, your broker should be advertising to as broad a brush of prospects as possible (including other brokers) to create competition and activity. Second, your broker should be playing the strengths of the deal: bankability, terms, working capital requirements, lifestyle, etc.
Every deal is different and buyers whether they know it or now look for both the economic best deal but also the best deal that creates the lifestyle they want. The best example of that here in Central Florida is the element of E2 visas and annuity cash flow. E2 investment buyers buy for a lifestyle and they need strong cash flows till they build credit. Businesses that are home based are more attractive than ones that tie up capital and much-needed liquidity.
So when picking your business broker insure they both understand this principle and can demonstrate tangibly how it can be implemented