Choosing Between More Than One Buyer
Two offers on your business rarely compare on price alone. How to weigh cash at closing, certainty, terms and what each buyer means for your people.
Words by
Matan Michael
Having two offers is the position most owners hope for, and it is more tiring than they expect. The papers arrive within days of each other, one with a bigger number and one with a friendlier tone, and each buyer is waiting for an answer. The decision is yours, and it is easier when you stop looking at the headline price and start looking at what each offer will put in your hands on the day you leave.
Start with the number you would receive
The price on the first page is the beginning of the comparison. Take each offer and work down from it. How much arrives at closing in cash? How much is a note you hold, paid over time, and at what interest, secured by what? How much depends on the business hitting a target after you are gone? How much sits in a holdback or an escrow for a year or two, while the buyer decides whether anything you said was wrong?
An offer that is larger on paper can be smaller in cash. A buyer offering a high price with a third of it as a seller note and another portion as an earnout is asking you to finance the sale and carry the risk of the business after it leaves your hands. A lower offer with most of the money at closing may leave you better off, and our post on seller financing goes into what you are accepting when you carry paper. Our post on earnouts and holdbacks does the same for payments that depend on later results.
Then subtract the costs that come off the top. Taxes depend on how the price is divided among the assets, and the two buyers may propose different splits. Transaction costs, fees, the debts that get paid at closing, and any adjustment for inventory and working capital change the final number. Put both offers in one sheet, with the same lines, and the difference becomes clear. It is often smaller than the headline suggests, and sometimes it points the opposite way.
Whether the buyer can close
The second question has more weight than most owners give it. An offer that does not close pays you nothing, and a failed attempt costs months in which the business is distracted, your employees may have heard, and your competitors may have used the time.
Ask what funds the purchase. A buyer using cash they hold is the simplest case, and you should see proof. A buyer using a bank loan, including an SBA loan, has a lender who must approve the deal, and the lender will review your financials, the lease, and the buyer's credit. Our post on SBA loans in business acquisitions explains the requirements a seller should know. A buyer relying on investors or on money from a sale of their own home has more steps to complete. A strategic buyer, meaning a company in your field, may have the money and also a committee that has to sign off.
Look at the conditions. An offer full of contingencies is a request for an option, with the buyer able to leave if a financing, diligence or approval item goes wrong. An offer with a short list and a firm date shows more commitment. Look at the buyer's track record, too. A person who has bought and run companies before will usually move faster and complain less than a first-timer, even if the first-timer is more enthusiastic.
The terms around the price
Terms are where two offers at similar prices separate. How long is the buyer's review, and what will they ask for? A short period with a clear list is better than a long one with open-ended requests. What are they asking you to promise about the business? Broad promises with a long survival period leave you exposed to claims for years. What is the non-compete, and how far does it reach? Our post on non-compete agreements explains what is customary.
Look at the sale structure. Whether the buyer is purchasing assets or stock affects your taxes and the buyer's liability, and the two buyers might want different structures. Our post on asset sales and stock sales describes the trade-offs. Check what the buyer expects of the lease, the licenses and the contracts, because each one that needs a third party's consent adds a chance of delay.
Check the transition. Some buyers want you for a few months, some want a year, and some want a role at the company afterward. An owner ready to be finished may find a long transition costs more than a modest cut in price, and an owner who enjoys the work may find a short one disappointing. Our post on how long you stay after you sell can help you think it through. Pay is part of that discussion too. A paid consulting role is different from an unpaid promise to help.
What each buyer means for your people
It is easy to leave employees out of the comparison, and it is often a mistake. They are the reason the business has value, and they are the ones who will live with the new owner. Buyers differ here in ways that show up quickly.
An individual buyer who plans to run the company may keep everyone and ask the best employee to take on more. A competitor may combine operations, close a location, or let people go who duplicate their own. A private equity group may keep the team and replace the layer above it. A larger company may bring benefits and a salary scale that are better or worse than yours. None of these is wrong, and each has consequences.
If you care about the staff, ask each buyer direct questions. Who will lead the day-to-day? Are layoffs planned? Will wages and benefits stay in place for a period? Will the location stay? Get answers in writing where you can, and be careful about what you rely on, because promises made in a sales meeting often fade by the closing. Our post on when to tell employees covers timing.
Customers deserve the same thought. A buyer who understands your customers and plans to serve them as you have is likely to keep them, which matters if part of your price depends on future results.
Talk to both buyers again
Once the offers are in, you are free to go back to each buyer and ask questions or make a request. This is normal, and a good buyer expects it. You might tell one buyer that another has offered more cash at closing, and ask whether they can improve that part. You might ask the higher bidder to prove their funds. You might ask the buyer with the friendlier terms whether their price can move. Be truthful about what you say. A bluff about a non-existent offer can be caught, and it ends the conversation.
Be careful with the timing. A buyer who is told to submit a best and final offer by a certain date will usually produce one, and the date should leave you room to review it without a rush. Do not drag the process, though. Interest cools, and a buyer who feels used may leave. A few days of questions and a clear deadline are usually enough.
Ask your advisor and your attorney to compare the written offers with you, line by line. They will notice items you did not, like a definition of working capital that favors the buyer, or a release you did not expect. At Business Advisors of America we build a side-by-side sheet for owners in this position, because the comparison is the work.
Making the call
You will rarely find an offer that wins on every line. Weigh them in this order and see where you land: certainty of closing, cash at closing, the terms that could cost you later, and what happens to your people and your name. Price counts at every step, and it is only one of the lines.
If it is close, trust the buyer you believe. The buyer who answers questions plainly, returns calls, gives you documents when promised and treats your staff with respect in the first meeting will usually behave that way in escrow too. A buyer who is evasive about funds, tone-deaf with your team, or quick to change the story now will probably be worse later.
Whichever you pick, say thank you to the other, and ask whether they would stay available as a backup for a short while. Deals fall apart for reasons nobody planned for, and a second buyer who is still interested may save you months. Keep the relationship open until the money is in your account.
