Buyers who are interested in acquiring a business usually have a long list of questions before they get to a non-binding offer, and more during the final due diligence phase.
But sometimes sellers neglect to ask questions that they should be asking a potential buyer before they engage in discussions.
Asking the right questions can help sellers qualify prospective buyers, set the right expectations for both sides, streamline the sale process… and ultimately create a win-win scenario for all parties involved.
Here are four critical questions that a seller should ask the prospective buyer in the early stages of the process.
1. WHY ARE YOU INTERESTED IN ACQUIRING OUR BUSINESS?
Sellers sometimes assume that a buyer is primarily interested in the seller’s book of business or specific assets.
While that may be true, buyers often also have more strategic reasons to be interested, including
access to the seller’s operating model or a unique way of meeting market demand
seller’s management or leadership team (and ability to leverage this team to grow the buyer’s business)
costs that the buyer can reduce to improve profitability
A buyer who cannot clearly articulate why they’re interested in the business may take too long to conduct unnecessary due diligence and extend the process as they figure out their strategic rationale.
2. WHAT EXPERIENCE DO YOU HAVE IN BUYING AND INTEGRATING BUSINESSES LIKE OURS?
Buyers may be able to list off a number of transactions they’ve made over the last several years but sellers should also inquire into the buyer’s experience integrating the targets.
In the rush to get the deal closed, sellers sometimes overlook the integration process – but this phase remains one of the most critical steps to make the transaction successful.
The buyer should be able to articulate their plan for the integration – including not only how they grew the business, but also how they retained the target’s employees and management team.
3. WOULD WE MAINTAIN OUR COMPANY CULTURE OR WILL IT CHANGE?
Getting the business alignment is of course important, but sellers should ensure there is also a cultural fit between the two companies.
This includes both:
tactical and process-driven areas (e.g. such as the dress code, vacation policy, telecommuting policy) but also
deeper factors that impact the way in which people collaborate (e.g. do employees get autonomy in decision making or is the decision making top down, are employees encouraged to voice opinions about business decisions?)
If culture is truly a mismatch, this is one of the hardest areas to rectify post-deal.
4. WHAT TIMELINE DO YOU ENVISION FOR THE DEAL?
Getting the buyer to commit to a timeline ahead of the process is critical.
Transactions that start off being framed as a “short, easy process” can sometimes stretch into several months or quarters.
The seller should ask the buyer to provide an overall timeline for the deal – which includes establishing a timeline for the key milestones, and at the very least for:
getting to a non-binding offer or LOI
receiving the sale and purchase agreement draft
final diligence
closing
A deal will almost always get extended beyond the original timeline but having a draft timeline puts pressure on the buyer to act quickly and to allocate the necessary internal and external resources to close the deal.