Screen for Letter of Interest

At some point after making contact and having a discussion (or discussions) with a prospective buyer, you should request a written confirmation of interest from the potential buyer where there is an outline of the general time frame and conditions under which the buyer would consider a purchase. This is an important document as it will confirm whether it is worthwhile to you (from the standpoint of your time and potential achievement of your sales objectives) to continue your negotiations with this potential buyer.

PQ does not automate your negotiations, of course, but it does give you both the platform to manage them (including multiple parallel negotiations) and it helps you maximize your preparation for the negotiations. At this point, with all precedent steps under your belt, you will have your positions (goals, best case and walk away) established to cover the core components of what you will negotiate with prospective buyers.

What are You Negotiating?

Buyer

Price
Structure
Liabilities
Taxes
Employment
Non Competes

Seller

You want the buyer to pay at least “Market Value”
Buyer will prefer to pay less than “Market Value”
You want the buyer to assume most if not all of the risk
Assuming you have a strategic buyer, you want him to share the difference between Fair Market Value and his Strategic Value; the buyer would prefer to keep it all
The Buyer will prefer that you take all the risk for an unlimited time.

Typical Negotiation Flow

Buyer Tactics

Hide the level of interest they actually have
Attempt to receive all the benefits of an acquisition
Dispute the quality of the valuation
“Price is unreasonable – sharpen your pencil”

Seller Tactics

Create competition – auction process
Reveal problems early while leverage is highest
Be specific in the LOI (Letter of Intent)
Avoid or limit the no-shop
Tie exclusivity to buyer achieving milestones
Be willing to negotiate a creative structure to close the valuation gap between buyer and seller
Close as quickly as possible

Seller Conduct

Understand market value
Be transparent and responsive
Run a fair and efficient auction
Don’t be greedy

BUYERS DON’T TOLERATE GAMES, THEY ARE PREPARED TO MOVE ON

Assuming the Letter of Interest is satisfactory, you will then move on to Step 10, Negotiate the Term Sheet.

PQ can provide a list of preferred third-party advisors for Step 9 including Lawyers, Wealth Managers, Tax Consultants, Accountants and more.