If You're Engaging One Buyer, You're Losing Leverage

Written By Nikoleta Exis

Reading Time: ~5 minutes

Key Points

When selling your business, you want to keep as much leverage as possible. The best way to do this is by engaging multiple buyers. Don’t have time to read the article? Here are the most important points you need to know:

Maintain Negotiation Leverage with Multiple Buyers: Engaging multiple buyers strengthens your bargaining position and prevents appearing desperate.
Competition Increases Business Valuation: Multiple interested parties create a competitive environment, driving up the sale price.
Enable Effective Price Discovery: Diverse offers help accurately determine your business’s true market value.
Gain Control Over Negotiation Terms: Setting deadlines and conditions ensures negotiations align with your strategic objectives.
Compare and Evaluate Different Offers: Assess various deal structures and terms to select the most favorable proposal.
Reduce Risk of Deal Falling Through: Having alternative buyers ensures you have backup options if one deal fails.
Protect Against Aggressive Buyer Tactics: Multiple buyers dilute pressure tactics, safeguarding you from unfavorable concessions.
Avoid Signaling Desperation: Demonstrating broad interest prevents buyers from exploiting your position for better terms.

Introduction

During any negotiation, your priority should be maintaining leverage. In a business sale negotiation, the majority of your leverage is acquired through engaging with multiple buyers. Having multiple buyers makes your business seem more valuable and helps you get better deals. You can negotiate higher prices, better terms, and smoother transitions. This gives you more options and lets you choose the offer that best fits your goals. Adversely, let’s explore the detriments of chasing a single acquirer.

Lack of Competition Reduces Leverage

Without multiple buyers, you lack the competition that naturally drives up the price of your business. You lose the ability to go to Buyer A and say, “We’ve received more favorable terms, if you’d like to proceed please revise your offer.” You are simply playing by the terms of the singular buyer, which may not align with your goals. This limits your negotiation leverage, making it harder to secure optimal terms and potentially resulting in a lower overall valuation. Additionally, relying on one buyer increases the risk of the deal falling through, leaving you with fewer alternatives and prolonging the sale process.

Absence of Price Discovery

Negotiating with just one buyer means the seller doesn’t benefit from the market’s valuation insights. For example, Buyer A may offer $10 million for your SaaS company. If you only engaged with them, you may think that this is a sufficient offer. However, if you engage with multiple buyers, both financial and strategic, you may get a range of $10 million to $30 million. Multiple offers help establish a clearer picture of the business’s true market value, ensuring the seller doesn’t leave money on the table by accepting a suboptimal price.

Decreased Control Over Terms

Additionally, you lose the ability to instill powerful negotiation tactics like deadlines and optionality. Without setting deadlines, you’re on the timeline of the buyer. You’re waiting for them to make the next move, meanwhile your business is losing critical on-the-market time. Losing optionality limits your ability to choose the best possible outcome, weakening your negotiating position. Without multiple alternatives, you may be forced to accept less favorable terms that don’t fully meet your objectives.

Limited Opportunity for Comparative Evaluation

With multiple buyers, a seller can compare different offers not just in terms of price but also in terms of deal structures, terms, and post-sale involvement. This diversity allows the seller to choose the proposal that best aligns with their strategic objectives and personal preferences, ensuring a more tailored and satisfactory outcome. Without multiple options, the seller may have to accept less favorable terms or miss out on potential synergies and benefits that competing offers could provide. A single buyer scenario deprives the seller of this comparative advantage, making it harder to assess the best overall deal.

Increased Vulnerability to Buyer Tactics

You should always present yourself as a buyer that wants to sell but does not need to. Engaging a singular buyer may show desperation, something that the buyer can take advantage of. A solitary buyer may employ aggressive negotiation tactics, knowing the seller has no alternative options. For example, they might introduce time-sensitive conditions that force the seller to make quick decisions or exaggerate potential risks to justify lower offers. Additionally, the buyer may leverage threats of walking away or delaying the deal to extract more favorable terms. This can result in the seller being pressured into making concessions or accepting terms that aren’t in their best interest.

Conclusion

Maintaining leverage is essential for a successful and profitable business sale. Engaging multiple buyers creates a competitive environment that increases your business’s valuation and offers flexibility in negotiating favorable terms aligned with your goals. This strategy ensures accurate price discovery, enhances control over negotiation timelines and conditions, and allows for thorough comparison of different deal structures. By avoiding negotiations with a single buyer, you reduce the risk of the deal falling through, protect yourself from aggressive buyer tactics, and prevent signaling desperation. Ultimately, presenting your business to a diverse pool of buyers maximizes your financial return and ensures a smoother, more controlled transition, leading to a more successful and satisfying exit.

Action Items

Research and compile a diverse list of strategic and financial buyers relevant to your industry.
Hire an M&A advisor or business broker to reach out to multiple qualified buyers and manage the sale process.
Develop a document that highlights your business’s strengths and growth opportunities.
Identify your desired terms and conditions.
Prepare and organize your financial, legal, and operational documents for efficient due diligence.