Part of what I do as an M&A advisor when working with my sell-side clients is making absolutely sure that they are prepared for the questions that will be asked when we get to the “chemistry” calls with prospective buyers.
There are three questions that almost always come up on the calls, and sometimes sellers are not really prepared to answer them. Or, if they are, it doesn’t come across as genuine or confident. Therefore, I thought I would touch on the top questions to answer and ask as part of a buyer/seller chemistry call.
I refer to this as a “chemistry call” because it is typically that first call with a prospective buyer after they have seen both your blind profile and confidential information memorandum (CIM); at this point, they understand all the numbers, but are using this call to learn a little more about you, the seller. Make no mistake, though: how you answer these questions will determine how interested they remain and the terms of your offer.
For example, if you are the sole owner and want to retire immediately after the sale, you may actually receive a lower offer because the buyer will be concerned about customer retention. Ideally, you have metrics to show how loyal your customers are, such as customer satisfaction scores and churn rates. If you have a great management team and a high amount of recurring revenue, you should be able to offset those concerns without a reduction in price.
On the flip side, if you can show the prospective buyer that you remain energized about your business and the future opportunities that an acquisition will bring, then you will see more interest from buyers.
I have compiled a list of 32 questions which I use to prepare my sellers; 16 are those that I want them to be prepared to ask and 16 are those that I want them to ask on the call.
Below, we’ll cover the top 3 questions prospective buyers will ask you. In my next post, we will review the top 3 questions YOU should ASK of a prospective buyer.
Now let’s see how ready you are for these top three questions:
1. Why do you want to sell the company NOW?
Here is why they ask: The buyer wants to know if you are burned out, need cash, want to move on to other things, or still have enough energy to stay and help take the company to the next level.
This is the single most important question that you will be asked, and by every prospective buyer you meet. Your answer will determine the type of offer you receive. If you have owned your company for over 20 years, be prepared for the burnout question. Sellers always assume that is why you are selling. If not, then be very definitive on why now, such as:
- Being a part of a larger team and giving your employees more opportunities
- Looking for an investment partner to help the company grow
- Looking for a buyer who will provide complimentary products and services that allow for upsell and cross sell opportunities.
2. Will you remain with the company post transaction and, if so, for how long?
Here is why they ask: First off, you need to be clear in your own mind what it is you want. If you want to leave soon afterwards, be clear about it. If you are willing to stay only for the earnout period, be clear about that as well. If your answer depends on who the buyer is, always lead with, “I will stay for an indefinite period of time.“
If you do want to exit immediately or shortly after the sale, be sure you have the management team in place to take over for you.* And if you do, it is important that you sell this team to the buyer and ensure they are confident that the company does not revolve around your presence and leadership.
3. How and where do you see the future growth of the business?
Here is why they ask: A buyer wants to see if you are aligned with their strategy or if you have some insights to verticals or other opportunities that they may not be aware of or see in your CIM.
Whether it is a financial or strategic buyer, they will want to understand where the opportunities are from your seat. If you feel you are leaving money on the table because you cannot sell or service XYZ product, then state it. If you feel like you need development resources due to constant demand from your customers, then state it. Or, if you just see increased margin opportunities, make that known as well. The more areas of growth you can identify, the more the buyer can see future opportunities.
If you want to learn more about the other 13 important questions you need to be able to answer, then be sure to download our resource guide.
In our next post, we tackle the questions you should be asking and some specific questions if the buyer is a private equity firm.
*Not sure how ready you are to sell? Be sure to take our quick Personal Readiness Assessment to find out.
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