Proactive Sellers and Buyers Create Results
by Charles V. Lemmon

From IMAP's Fall 1998 Newsletter, the "M&A Insider" Vol. 4 No. 3

Dare with me, brave sellers and buyers, to stir up those manic and hopeful juices. Dare to spend a few moments thinking of an attitude that may gratify you with the largest transaction of your career.

All brave sellers want a qualified buyer to pay very close to maximum value for their business. In addition to high range value, sellers consistently prefer to deal with a buyer whom they like and can trust with the future of their business and it's employees. What attitude attracts and retains a qualified buyer through the closing?

All brave buyers hope to find a bargain, but expect to pay a fair price. In addition to a fair price, buyers always prefer to deal with a willing and cooperative seller, whom they like and can trust. What attitude encourages open dialog and bonding?

Proactive and cooperative sellers set the tone for fair value negotiations. In our experience, mutually proactive buyers always respond favorably to a seller's cooperative tone. When a seller's cooperation is sincere, a buyer generally tries harder to meet a seller's needs. In the best transactions a special rapport builds, which results in an extra effort by the seller to help the buyer succeed.

Our successful firm has long maintained the position that we cannot sell a business. The seller must sell his business. Our firm advises in structuring and strategy, prepares the offering memorandum, and actively assists in both negotiations and the coordination of a smooth closing. Most importantly, we bring qualified buyers.

Aside from structuring, strategy and negotiations, in every business transfer there must be a willing and proactive seller together with a qualified and proactive buyer. The seller always questions, "Will this buyer only offer a super low price, breach confidentiality, and destroy my business?" The buyer always wonders, "Is this seller reasonable or is he just shopping to see what the market will pay?"

IMAP intermediaries pre-qualify sellers to verify their real intentions to sell. IMAP intermediaries verify a buyer's ability to close. IMAP intermediaries facilitate a transaction by articulating "hot button concerns" for each party so those hot buttons may be addressed and pushed.

Sellers, take note. In order to achieve maximum value and to encourage activity, buyers want to hear you say:

I want to sell my business, and

I will assist you during a transition period, and

I will finance a reasonable portion of the purchase price in the form of a Non-Compete Agreement together with a Transition Management Agreement, and

I will reasonably indemnify you for your normal concerns such as the collectability of accounts receivable, warranties that there are no current or pending lawsuits, and warranties related to pre-sale environmental issues, if any.

Being cooperative is not a sign of weakness. Being proactive and cooperative is smart.

The most successful sellers enjoy several offers from which to choose. Unless a particular buyer is overly aggressive, the market for business sales is reasonably efficient and all offers tend to normally fall within a specific range. When a seller articulates his expectation of mutual cooperation, a foundation is laid for open communications and expediency. IMAP members counsel selling clients that maximum value is paid to those sellers who actively cooperate and participate in a sale.

It is generally good form to be cooperative and meet a buyer's reasonable requests early. Playing hardball for idealistic terms frequently leads to frustration and a failed transaction. IMAP members coach their clients on the “reasonableness” of an offer.

Do you know what uncooperative sellers are called? They are called "Owners."

Do you remember courting your spouse? Didn't they then and don't they still like you to state your affection? Remember when you applied for your first job after graduation? Didn't you enjoy the employer's comment of how you would fit well into their organization?

Guess what? Both sellers and buyers want to be courted. Respect, open communications, and cooperation facilitate a bond to last beyond the closing.

True sellers are psychologically ready for a change and have realistic expectations of value. Qualified buyers are prepared to prove-up their financial ability and, if possible, reassure a seller that most or all of the seller's needs will be met. While greed is a dominant motive in many sales, true sellers desire to achieve fair value with a substantial amount of cash paid at closing. True sellers accept advice that 100% cash sales are virtually nonexistent. True sellers understand a buyer's concern for prior lawsuits, product warranties, environmental issues and other risks pertinent to a stock sale. True sellers cooperate with a buyer to indemnify against liabilities, which may have occurred prior to a sale.

Similarly, the most successful buyers actively communicate with the seller and follow-up with a fax or letter. Successful buyers have conversations with the seller about post-acquisition issues. They may have dinner with the seller and the seller's wife at a non-business location. Personal involvement is critical. Most sellers want to sell to a buyer who both shares the seller's vision and will preserve the existing corporate culture. The price paid is very important, but the winning buyers are those who establish rapport, a shared vision, and a personal bonding with the seller.

Remember, intermediaries bring buyers, advise, and assist. Sellers must actively sell their business. The term "Buyer" is reserved for those who have pulled the trigger and closed. Others are just "Prospective Buyers".

If you still dare to stir those manic and hopeful juices, then anticipate heavy involvement in the selling or buying process. In our experience of successful closings, a high commitment for direct personal involvement is required between the seller and the buyer.

Charles Lemmon is President of C.V. Lemmon & Co., Inc., a private investment banking firm and an IMAP member in Dallas, Texas.

Charles Lemmon can be contacted by telephone at (214) 692-7248 or by E-mail at CVLemmon@CVLemmon.com.

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