Finding and Engaging the Outlier
At Valitas, we stress the importance of surfacing the Outlier. The Outlier is that one acquirer or investor who sees more value in your business than does anyone else. The Outlier usually has the most to gain from your business as compared to other potential buyers. Competitive tension is the mechanism that increases the likelihood that this Outlier will pay you for that value.
Competitive Tension is Essential
Just because a bidder is able and willing to pay a higher valuation doesn’t mean they will. As a seller, it can be very stressful to feel compelled to settle for a lower value or inferior terms in order to finalize a deal and minimize the risk of a breach of confidentiality, which is more likely when the process is protracted or poorly controlled. Our strategy empowers our clients by having several interested parties concurrently competing to buy their businesses through controlled auctions. Such a process creates external pressure on Outliers, driving up their bids and ensuring a punctual closing. We are adept at striking the right balance between competitive tension and the likelihood of information leaks and other risks associated with auctions.
Balancing Competitive Tension with the Need for Confidentiality
The optimal process establishes the right balance between competitive tension and the likelihood of leaks and other risks with your competitors. Sometimes, the logical acquirer universe is very small and there is no trade-off to consider. However, in most cases:
- The financial acquirer universe is vast; and
- The strategic acquirer universe is narrow
Because financial and strategic acquirers are fundamentally different, which of these groups is targeted in a sale process impacts how that process is designed.
A Cautionary Note on Exclusive Negotiations
We often hear business owners say, “A competitor just approached me about buying my business. I’ll just sit down with him and cut a deal.” The assumption being that this approach will be quick, easy and quiet. It is a common fallacy that an exclusively negotiated deal is faster than a structured process. The acquirer with exclusivity rarely moves with urgency, often extending due diligence for months.