When it comes to selling your business, the biggest mistake you can make is negotiating with a single buyer.
Having one offer is the very best way to ensure you sell your business for the lowest price, with the worst possible terms, and in the longest, most protracted sale you can imagine.
What you desperately need when selling is a second (and ideally a third, fourth and fifth) offer to start a bidding war. Competition jacks up the price and gets you a better deal faster, because the other side knows there is a competitor vying for the same assets.
Starting A Bidding War
I recently interviewed an enterprising young entrepreneur named Nathan Latka, who took an interesting approach to starting a bidding war over the sale of his business. Heyo was a social media company that helped businesses advertise on Facebook and had also developed some proprietary technology. Heyo raised $2.5 million in seed and venture capital financing and, by all accounts, it was a growing and successful business.
But Latka decided he wanted to sell and knew the key to getting a fat offer was to start a feeding frenzy. Latka had carefully cultivated relationships with a short list of business development executives working in merger and acquisitions for the companies he knew had a reason to acquire Heyo. In a bizarre move, he emailed them all indicating his plans to close the company down, claiming they had missed the ideal exit window and that, to be fair to his investors, he was going to shut down Heyo and give his early backers their money back.
Latka had no intention of shutting down his company. The email was a ploy to make his cadre of buyers think they could get Heyo at a discount. Latka quickly got seven lowball offers, but that didn’t bother him.
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His trap had been set.
Latka knew that for a business development executive to make an offer even a lowball one they needed to get approval. The business development executive makes an internal pitch to their board and then has egg on their face if they can’t land the deal.
Latka knew the offers were just starting points for the negotiations, so he went back to each offering company, explained that their bid was not competitive, and invited them to increase their offer.
Doubling His Price
Of the seven offers, three bidders came back with offers that were as much as twice as high as their first. Latka then made the daring move of pushing the remaining three bidders even further. He told all three finalists he was about to make a decision, but their offer was still not competitive and again invited them to sweeten their deal.
Unbelievably, two of the three doubled their bid again. Latka finally sold his business to Votigo for around 11 times revenue.
Latka’s unorthodox approach underscores the single most reliable way to get a better price for your business: thou shalt drum up competitive offers.
Courtesy : forbes.com