There is a big difference between being approached by someone about buying your business and actually selling it.

Consider the Riverside Company's acquisition activity in 2009. Riverside is a large, successful private equity outfit that specializes in buying companies, streamlining their operations, jamming them together with other complementary companies and selling them for a profit.

In its 2009 annual report, Riverside claims it considered buying 4,228 companies during the year. Of those, it walked away from 2,913 and sent a screening memo to the other 1,315.

Of course, when you get a letter from a big, international private equity company saying it's interested in buying your business, you might be tempted to break out the bubbly and head down to the Ferrari dealership. But don't be too hasty. Of the 1,315 companies that got a letter, 968 were eliminated before Riverside even set foot in their office or plant. In fact, Riverside went only so far as to visit 347 companies.

Of the 347 companies it met with, Riverside provided just 63 with a formal letter of intent (LOI) to buy their business; the other 284 were left asking what they said wrong in the meeting.

Now, surely an LOI is worth celebrating. At the LOI stage, the acquirer has spelled out the purchase price it is willing to pay, the working capital that needs to be left in the business at closing, the operating covenants, the due diligence check list and so on. Surely it wouldn't go to that level of detail if it wasn't planning to follow through on its offer to buy the business. Or would it? Well, of the 63 companies that got an LOI from Riverside last year, only 15 actually got acquired, leaving the other 48 either turning down an offer or standing at the altar.

In my experience, selling a business is a little bit like an elimination-round tennis tournament. A lot of people make it to the tournament, but as you advance from one round to the next, the challenges get tougher, and at each stage, a lot of good players get eliminated.

John Warrillow is a writer, speaker and angel investor in a number of start-up companies. He writes a blog about building a sellable company at

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