There are lies, damned lies, and things people will tell you when they want to buy your business.
If you are a business owner or CEO, chances are that you’ve been approached more than a few times by someone expressing an interest to invest in or acquire your company. In the off chance you have received a thoughtful, well-communicated inquiry about why this person is specifically reaching out to you, then before you pick up the phone to return the call, consider these three questions you will want to ask to better evaluate their intentions.
- Do you have the money to buy my business?
There are many flavors of investors in the mergers and acquisitions community. Some have dedicated capital readily available to close transactions. Others do not. Whether the person with whom you’re speaking has the capital or doesn’t can have implications for what to expect over the course of a transaction, so it’s important you know this from the outset by getting a clear answer to the question.
If there is any hesitation from the individual, then proceed with caution. Your time is too valuable to follow someone down a rabbit hole. If the individual confirms that he or she has the money, then proceed to the next question.
- Where does the money come from?
Even though it might seem like a commodity, not all money is created equal. Where the money comes from can affect what the investor can pay for your business, how the deal is structured and/or how long the person intends to be an investor in the company. For instance, capital from a group of high net worth investors might value annual cash distributions over growing the bottom line. Other sources of capital may seek a return in shorter or longer time horizons which can affect the timing of future changes in ownership. Make sure you understand the true objectives of the capital source.
- Do you know anything about my industry?
If you get into deeper conversations about a transaction, you can expect the investor to want to conduct an evaluation of various attributes of your company. This is frequently referred to as “due diligence”. An investor familiar with your industry will be able to hone in on the material issues without sweating the small stuff. It will make your life a lot easier during the due diligence phase if more time is spent on the things that matter most.
These three questions are merely the starting point for the next time you get the call from someone who says they want to invest in or buy your business. If you’re seriously considering an exit strategy or bringing in capital for growth, you also need to do your own due diligence in vetting the right capital partner. The right partner will want to ensure the deal is a win/win and will ensure the transaction is conducted with transparency and that you’re well informed along the way.
About ClearLight Partners
ClearLight is a private equity firm headquartered in Southern California that invests in established, profitable middle-market companies in a range of industry sectors. Investment candidates are typically generating between $4-15 million of EBITDA (or, Operating Profit) and are operating in industries with strong growth prospects. Since inception, ClearLight has raised $900 million in capital across three funds from a single limited partner. The ClearLight team has extensive operating and financial experience and a history of successfully partnering with owners and management teams to drive growth and create value. For more information, visit www.clearlightpartners.com.
Disclaimer: The views and opinions expressed in this blog are solely my own and do not necessarily reflect any ClearLight opinion, position, or policy.