In the last email, we discussed how to handle unsolicited calls from parties (or their agents) expressing an interest in acquiring the company. We concluded that owners need to judiciously consider engaging in conversations with callers, be cautious about disclosing information, confirm that the caller is calling on behalf of a specific, named client, and determine early on if the owner is genuinely interested in following through with the discussions. In this email, we will consider the pros and cons of negotiating with buyers in a “serial sale process” as they reach out to the owner versus an “organized sale process.”
What does an “organized sale process” versus a “serial sale process” mean? An organized sale process means that the owner, or their agent, reaches out to all buyers at the same time, distributes the same information about the company to all buyers at the same time, requests that buyers submit offers for the company at the same time, etc.
In other words, all buyers are managed in a parallel process. An organized sale process could include as few as two or three buyers or fifty buyers or more.
In a serial sale process, the owner enters into negotiations with buyers one at a time, generally as they approach the owner, sees each discussion through to its logical conclusion, and then enters into negotiations with the next buyer until the owner sells the company.
Which process is better? Experience indicates that for many reasons an organized sale process typically results in a better outcome for the owner than a serial sale process.
First, an organized sale process demonstrates to buyers that the owner is serious about selling their company and there is competition to acquire the company. It also keeps all buyers parallel in the sale process. In a serial sale process, buyers often act like they have a “free option” to acquire the company, follow a “leisurely” schedule to review information, make an offer at their convenience, and generally do not feel a sense of competition or urgency.
Second, buyers understand that in an organized sale process, the company is for sale one time. If there is a compelling reason to acquire the company, then the buyer may only have this one opportunity to make the acquisition. In the case of a serial sale process, the company is continuously for sale until it is sold. There is no sense of urgency for buyers. In fact, for companies that are perpetually for sale, the company often becomes “cocktail chatter,” specifically, “hey, have you guys looked at xyz company . . . .” In addition, buyers wonder what is wrong with the company, why hasn’t it been sold yet, and is the owner realistic with respect to price and terms. In other words, a company that is continuously for sale and has been reviewed by numerous buyers creates the impression that the company is “damaged goods” or not really for sale.
Third, in an organized sale process, the preparation of diligence information is limited to current, relevant information. In a serial sale process, the diligence information must be continuously updated due to the passage of time. While the time commitment to prepare the information for an organized sale process can be significant, it is generally bounded. In a serial sale process, the time commitment to prepare/update information is unlimited.
Fourth, the sale of the company is disruptive to the owner and the management team. The organized sale process contains the disruption to a finite period of time. The disruption in a serial sale process can be continuous and extend for years until the owner sells the company, if ever.
Finally, the hard and soft costs in an organized sale process can be contained since the expectation is that the company will be marketed for sale one time over a finite period of time. In a serial sale process, the owner will continuously need input from their advisors since sale discussions are ongoing. The continuing sale of the company is costly in terms of both professional fees and management time.
In conclusion, there are numerous benefits to selling a company in an organized sale process versus a serial sale process. The sale of the company in a one-on-one negotiation can eventually lead to a successful outcome; however, the owner can only be assured that they optimized the outcome and sold their company for “fair market value” in an organized sale process since, by definition, the result of an organized sale process is fair market value.
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