Preparing for a Sale

Page 3

Your advisor should have a feel for which qualified buyers are actively pursuing investment opportunities and a good sense of the attractiveness of your particular industry segment to such investors. Potential buyers usually fall into one the following categories:

* Direct competitors,

* Companies serving the same end user,

* Customers looking to capture channels of distribution,

* Suppliers,

* Companies using similar technology,

* Companies with counter cyclical products, and

* Investment companies (e.g.; LBO groups).

The list of initial buyers should be as broad as possible, incorporating potential buyers from all the categories above, both domestic and international. It is easier to start from such a universe and carefully reduce the numbers (usually through a system of setting priorities) that it is trying to add to a short list later in the selling process. Ranking potential acquirers from most to legal logical requires an assessment of how each of the following characteristics applies to a particular buyer:

* Potential synergistic benefits with current operations,

* Capital/financing to close a transaction,

* Experience in completing acquisitions,

* Previous knowledge of or involvement with company/industry,

* Geographical proximity to the company, and

* Announced intentions to grow through acquisition.

It is at this point that the first critical decision must be made: How broadly should I market my company?

A wide distribution of the descriptive memorandum increases the probability of achieving the best price, but also increases the likelihood of damaging your company by sharing sensitive information with too many people. Your competitors may be the "best" buyers, but they are also the ones who could inflict the most harm on your business if they are privy to confidential marketing and manufacturing information.

Because this decision sets the stage for the marketing process, we will address the pros and cons of narrow versus wide distribution in more detail in our next chapter.