I just got back from hosting the first meeting of a buyer
and seller. As the M&A broker, I
usually have a lot to say, as I see my primary job as educating the buyer and
seller about the complicated process of selling and buying a business. However, during the buyer/seller meeting we
get to sit back and watch – only interjecting questions or comments when
appropriate. It’s the time for the buyer
and seller to meet, talk and size each other up.
It is an extremely important event. Let me set the stage for this particular
meeting. The business is being sold for
north of $3 million dollars. The maximum
SBA business loan is $2 million, so there is over $1 million to cover. This must be made up in a buyer down payment
and “seller carry”.
So the buyer in this case, in most cases, is putting up his
entire life savings and putting his house on the line (SBA requirement) in
order to buy a business. It is a huge
financial risk for the buyer – most likely the largest in his life. He can do all the due diligence he wants, but
some amount of trust is involved. He has
to, at some level, trust that the seller has built a sustainable business that
the buyer can manage.
The seller, on the other hand, usually has just about
everything tied up in his business. He’s
worked 20 years in building the business and often his retirement depends on successfully
selling the business and getting paid for it.
Most often a seller note is required.
Even if a buyer is well funded the lender will often want a seller to
carry a note just to make the bank more comfortable that the business can pay
for itself. It is huge financial risk
for the seller – most likely the largest in his life. In order to get fully paid, the seller has to
trust the buyer to successfully take over and manage the business he built.
As intermediaries, we work with the seller and buyer and
bring the process along to the point where the buyer really needs to see the
business and meet the seller before going further. So the buyer seller meeting is scheduled.
The meeting is fascinating, and like I mentioned before, I
get to shut up (pretty much) and just watch.
When the seller is looking the other way, I can watch the buyer sizing
him up. Then the buyer is looking at equipment,
and it is the seller’s turn to try to size up the buyer. In a few hours it is over. So much rests on so little time. There will be other meetings, but there is
nothing like the first one for that first impression – the one that often forms a long lasting
opinion of someone.