What’s an off-market deal? Have you received a postcard that listed recently-sold homes in your neighborhood? You may have thought, “I didn’t even know these houses were for sale.”
These deals are called “off market.” Off-market deals involve properties or portfolios that are not officially listed for sale. They’re not publicly known to be on the market. They’re not advertised. They’re quiet, under-the-radar deals that allow the buyer and seller to work in an atmosphere of strict confidentiality – without the clamor and distraction of other players.
We have off-market deals in our industry, as well.
Why good off-market deals make sense
In my practice, I have discreet conversations with owners who want to sell their businesses. Each owner is in a different situation. Maybe they’re getting a feel for selling. Maybe there’s a health or financial issue pressing on them.
If the owner is ready to separate from the business, I can help them take the step toward their ideal future. We talk about which types of buyers are looking for a business like theirs.
With our team’s guidance, the CEOs representing the buyer and seller will meet. They’ll see if there is mutual interest and chemistry. This is a crucial stage for a successful transaction.
Statistically, most deals in the M&A arena don’t make it to the finish line. It’s especially common if buyers and sellers don’t retain professional and experienced dealmakers. There’s no reason to go forth with such dismal odds. Chemistry and trust are essential for the deal to move forward.
Off-market deals – or I should say good off-market deals – are the way transactions are really done. It’s how top business owners become dealmakers. These types of transactions are a key part of deal flow.
Off-market doesn’t mean off-the-cuff
Business owners often say to me, “If you have interested buyers, just send them my way.” No, it doesn’t work that way.
An off-market process does not mean random or off-the-cuff. You as the seller need to be committed to the process. You must be ready, willing and able to sell. Likewise, the buyer must be ready, willing and able to buy. This is not a game – it’s a strategic growth plan with multiple risks.
How sellers can maximize off-market deals
As a seller, you may be wondering what the advantage is for you to enter a private off-market discussion.
Timing is the first advantage: Buyers usually have a window where they have access to cash or the backing of investors. A seller who can meet the time frame will have opportunities not open to sellers who are locked into a lengthy, cumbersome and expensive process.
Money is the second advantage: Unless you are among the most-desirable businesses for sale, there’s a high cost to going to market. Yes, if you’re a profitable, well-positioned business, you can potentially create a bidding war among buyers – what we call an auction. It takes time, money and energy, however. Also, there are many variables that affect the success of this strategy.
On the other hand, if you are a well-run business with a good profit margin in a competitive niche, you’ll find it quicker and less expensive to enter into an off-market conversation with a qualified buyer who is looking for someone just like you.
Access to the right buyers is the third advantage: It can be hard to convey to sellers that they are desirable only to a narrow group of buyers. Remember, there are other sellers trying to capture the attention of the ideal buyer of your business. However, you probably don’t know who those ideal buyers are. We do.
Getting the timing right
To meet a buyer’s timeline, sellers must stay engaged. They must complete each of the steps required by the buyer. The buyer’s due diligence process is governed by rules or laws that also affect you. Having an experienced advisor by your side keeps the ball rolling.
If you are able to fulfill the give-and-take process, you can potentially close in 45 to 90 days. To close by December 31st means there’s no time for a long on-ramping process. There’s no time for vanity marketing or expensive M&A services designed to stroke the seller’s ego. There’s no time to overprice the business and have it linger, shopworn, until it is scooped up at a discount because it is perceived as distressed.
Keeping you off-market keeps you in control
For motivated sellers, there is enough time to sell your business in 2021. There’s time to make quiet inquiries to vetted buyers, review the Indication of Interest (IOI), facilitate conversations, complete due diligence, finalize the negotiations, schedule the providers required for the close, and then successfully close.
Even better, the process can be done out of sight of competitors, employees, vendors – and anyone else who might be curious (or nervous) about what’s going on.
The way I see it you have two avenues if you’re thinking of selling: off-market and auction. The advisor you hire to outsource your deal will help you choose the best route for your situation.
If you decide you are in the running to sell your business before the end of the year, it’s a sure bet you’ll benefit financially from a private off-market process. Doing so will allow you to bypass the pack and proceed directly to the finish line.
Rock LaManna is The Deal Flow Guy. He helps qualified buyers and investors find businesses that are ready for acquisition or transition. On the sell side, he helps owners improve their businesses, increase value, and position strategically in anticipation of sale, exit or succession. Sign up for his newsletter at TheDealFlowGuy.com and start the process.