Is a Monkey Trying to Buy Your Business? Beware.
In the previous column we discussed the many business owners are on the hunt for the ‘Bigfoot’ buyer or investor. They are looking for a strategic or corporate buyer who will pay an unrealistic price for their company. How does this owner know that Bigfoot exists? Other Other business owners, or even relatives, claim to have seen Bigfoot.
Bigfoot is just one of the beasts who malign mergers and acquisitions. Bigfoot has some close relatives who also create problems. I like to refer to these potential buyers as “monkeys.” Unlike Bigfoot, monkeys do exist, and they love to create mischief.
Monkeys are potential buyers who throw around any offer a business owner wants to hear. But monkeys only buy at rock-bottom prices. Monkeys also do their best to keep owners from even talking to other potential buyers.
Monkeys want to steal your company
Monkeys usually contact business owners directly, and do everything possible to keep the owner from using an auction process to sell the company. Monkeys do not like competition.
Recently, two operating companies were approached by strategic buyers. One was a $50 million dollar oil field services company, the second a medical products company. The oil field services company decided not to hire an investment banker or use an auction-styled sales process, because he already had two buyers-;both monkeys. The monkeys advised against hiring an investment bank or holding an auction. The owner never forced the two monkeys to compete for his company, and the company never sold.
The medical products company also had two monkeys playing around with the company and making bogus offers. But the owner of that company hired an investment banker. The banker held an auction, and provided the monkeys five weeks longer than other bidders, and informed the monkeys 90 days before the bid was due.
One monkey tried to talk the client out of the process. The other avoided talking to either the banker or the owner. When the final bid deadline came, neither monkey submitted a bid. However, the owner did receive other bids that were significantly above his initial expectations. The monkeys lost and the business owner won, because he held an auction and worked with serious, professional, financial advisers who could spot the monkeys a mile away.
Monkeys can scare off even ideal buyers
I had a client who owned a very successful company in the natural gas industry. A buyer from a major corporation was willing to offer 50% more than anyone had previously paid in the industry. The potential buyer was a public company, had made the offer through an auction process, and had a history of closing transactions. They were ready to close the deal.
A monkey buyer, who had not participated in the auction process, made an offer that exceeded the one from the public company. Upon further investigation, it was discovered that the monkey buyer was actually a member of a very wealthy family, in his 40’s, living alone in a one bedroom apartment. He refused to communicate with us or his legal and financial advisors.
However, the business owner was convinced the monkey was a real buyer and stopped communicating with me or with his other advisers. The monkey used the opportunity to kill the legitimate offer. Then the monkey dramatically lowered his offer and the entire deal collapsed.
Seek professional guidance to avoid monkeys and Bigfoot
Bigfoot does not exist. Monkeys do. Wise business owners seek professional guidance from experienced bankers who can identify the monkeys and keep a sale on track. Business owners who prepare in advance for the sale of their company, understand the real value of the company, and seek the advice of professionals who will conduct a true auction to sell the business, can avoid chasing Bigfoot or being distracted by monkeys.
Owners who follow these simple principles will be able to identify the best potential buyers who will pay the most for their company, and avoid the potential collapse of the entire sales process caused by chasing Bigfoot or listening to monkeys.
JEFF GROSS | Columnist | vice president, Allegiance Capital
Jeff Gross is a Vice President at Allegiance Capital. He has closed more than 100 transactions, and made seven private equity investments valued at more than $2 billion dollars during his 15 year career.