We’ve written previously about how to tell whether or not an owner is serious about selling their company and the questions every would-be serious seller needs be able to answer before marketing their company for sale. How about the buyer – what are the tell-tale signs that the would-be buyer is serious about purchasing the company?

To be sure, determining a buyer’s intentions is a lot like playing poker. Most buyers have certain “tells” that give away whether or not they are bluffing or genuinely intent on acquiring the company. Figuring out a buyer’s tells is largely based on instinct — most business advisors can tell when a potential buyer is “all-in.” How the buyer handles themselves throughout the process speaks volumes. For example, if the buyer is engaged, communicative, and responsive from day one, that is usually a good sign that they mean business.

Here are 7 signs that can help a seller determine if a potential buyer is really serious:

Sign #1: The buyer can clearly explain the business case for the acquisition: If there is a good case for a business fit and the buyer is able to articulate it, then the deal likely makes sense for the buyer, which increases the likelihood that they will follow through.

Sign #2: The buyer is genuinely attentive, engaged and responsive: As alluded to above, the buyer acts like they are serious about buying the company from the get-go. They confirm that the transaction is a priority. They have the time to undertake it and they will commit the resources to pursuing the transaction. In addition, they act with a sense of urgency, have a plan and timetable to move forward, ask relevant questions, do not “play games,” and do not disappear for days or weeks at a time (a good reason for a short exclusivity period — the “disappearing act” becomes a non-issue!). The buyer’s words and actions are aligned, and the seller does not have to guess or wonder about the buyer’s intent because, all else being equal (i.e., due diligence bears out), it is obvious that the buyer plans to follow through on purchasing the company.

Sign #3: The buyer views due diligence as confirmatory rather than as an opportunity to back out of or renegotiate the deal: Often times, buyers who are not serious will pick out petty items during the diligence process and use them as a way to back out of the transaction, or as an excuse to make meaningful changes to the deal terms (price, structure, etc.). They tend to “sweat the small stuff,” such as making an immaterial diligence item more significant than it needs to be — say, a small, irrelevant accounting or employee benefits matter — anything to derail the deal. 

Sign #4: The buyer is transparent about the availability of their capital and resources: There is no mystery here. The buyer is up front about where the money is coming from to fund the purchase of the company, whether that be cash in the bank, a sufficient line of credit, or whether they need to arrange the financing. If the buyer is willing to sign a Letter of Intent (LOI) that does not include a financing contingency, that is also a good sign that they are serious.

Sign #5: The buyer accommodates the seller’s confidentiality concerns: If the buyer is not respectful of the seller’s desire to keep certain critical information under wraps as long as possible, the buyer may have ulterior motives. For example, serious buyers should be willing to evaluate customers and vendors on a no-name basis until later in the transaction. Some would-be strategic “buyers” whose only motive is seeking competitive information may offer the seller a handsome price, mine the company for confidential information, and then make excuses to back out of the deal. This outcome is less than ideal for the seller for obvious reasons – not only does the seller have a busted transaction, but now they have to deal with potential damage to the company.

Sign #6: The buyer is forward-thinking about the post-sale transition: In other words, the buyer has a plan in-place for what happens after the closing. They are thinking about and talking with the seller about combining the two companies, the roles of various key personnel, etc. Essentially, the buyer is “projecting forward” by creating a plan to carry on (and improve) the combined companies once the sale is complete.

Sign #7: The buyer is spending money: Buyers who have hired and are paying advisors (accountants, attorneys, investment bankers, etc.) to help them complete the purchase of the company are, in all likelihood, serious about moving forward with the transaction.

Just like an opponent sitting across the poker table, sellers must watch would-be buyers carefully for certain “tells” that indicate whether they are serious, or whether the deal will ultimately be a flop. In the words of country singer Kenny Rogers, “You’ve got to know when to hold ‘em/Know when to fold ‘em/Know when to walk away/Know when to run.” Sellers who ignore the signs of a buyer who will likely fold and walk away may find themselves with a busted deal and nothing to show for their effort other than a lot of wasted time and money and potential damage to the business. Selling a business is a high-stakes endeavor, but sellers who are able to recognize the signs of a serious buyer are more likely to “cash in their chips” and achieve a successful closing.