Essential Questions to Ask Potential Buyers in M&A Discussions

When considering the sale of your company, it’s critical to thoroughly vet potential buyers to ensure alignment with your goals. While buyers will certainly have many questions for you, it’s equally important that you come prepared with thoughtful inquiries to gauge if a potential acquirer is the right fit. This comprehensive guide outlines key questions you should ask, along with guidance on framing these important conversations.

Questions for Financial Buyers

Financial buyers, such as private equity firms, are investors who purchase companies primarily to generate a return on their investment. When dealing with these types of buyers, focus on understanding their investment approach, expectations, and track record:

• What are your total assets under management (AUM)?
• What fund are you currently investing out of? How large is it?
• What is the typical multiple of invested capital (MOIC) you target for platform investments?
• How do you structure management incentive equity? What percentage is typically allocated?
• What are your expectations around rollover investment?
• Do you pay a preferred yield on equity?
• Do you charge management fees at the portfolio company level?
• What is your typical investment hold period?
• Can you provide references from entrepreneurs you’ve worked with previously?

Questions for Strategic Buyers

For corporate or strategic acquirers, focus on understanding their long-term vision and integration plans:

• What is the long-term vision for your company?
• What is your acquisition strategy and how does my company fit?
• Do you intend to keep our operations and team intact post-acquisition?
• What changes should my employees and I expect after closing?
• What synergies are you planning to realize after closing?
• How will employees be treated as synergies are realized?
• Is there an opportunity for rollover investment?
• How would you describe your company culture and employee engagement?
• How many strategic acquisitions have you completed? Can I speak with some former owners?

Valuation and Deal Structure

Understanding the buyer’s approach to valuation and deal structure is crucial:

• What valuation methodology are you using to value our company?
• How do you typically structure the consideration (cash vs. stock, earnouts, etc.)?
• What are your expectations around working capital adjustments?
• How do you handle potential contingent liabilities?
• Are there any specific financial metrics you focus on in your valuation process?

Due Diligence Process

Gain insight into the buyer’s due diligence approach:

• Who will be leading the due diligence from your side?
• What are the key areas of focus in your diligence process?
• How do you handle confidentiality during diligence?
• What is your typical timeline from LOI to closing?
• How do you approach quality of earnings analyses?

Financing

Understand the buyer’s financing plans:

• How do you plan to finance this acquisition?
• Do you have committed financing in place?
• What conditions are attached to your financing?
• How might changes in the debt markets affect your ability to close?

Post-Closing Integration

Delve into the buyer’s integration plans:

• Who will lead the integration process?
• What is your typical integration timeline?
• How do you handle potential cultural clashes?
• What systems and processes do you typically implement post-acquisition?
• How do you approach retention of key employees during integration?

Industry-Specific Questions

Tailor questions to your specific industry. For example, in a technology company sale:

• What are your plans for R&D investment post-acquisition?
• How do you approach intellectual property management and protection?
• What is your strategy for staying competitive in rapidly evolving tech markets?

Exit Strategy (for Financial Buyers)

For financial buyers, understand their exit plans:

• What are your typical exit strategies?
• How do you prepare portfolio companies for exit?
• Can you provide examples of successful exits in our industry?
• How do you align management incentives with your exit timeline?

Unique Value Proposition

Understand what sets the buyer apart:

• What makes you a better buyer than others in the market?
• How can you help accelerate our growth beyond what we could do independently?
• What specific resources or capabilities can you bring to our business?

Risk Factors

Probe the buyer’s risk assessment:

• What do you see as the biggest risks in this acquisition?
• How do you plan to mitigate these risks?
• What contingency plans do you typically put in place for acquisitions?

Negotiation Process

Gain clarity on the buyer’s decision-making and negotiation process:

• Who are the key decision-makers in your organization for this transaction?
• What is your typical negotiation process?
• How do you handle potential deal breakers?
• What is your approach to resolving disputes during negotiations?

Additional Key Questions for All Buyers

• What is your experience with M&A and business integrations?
• What first attracted your interest in our company?
• How do you envision the post-acquisition organizational structure?
• What are your plans for our brand and market positioning?
• How do you approach technology integration in acquisitions?
• How do you typically handle customer and vendor communications during transitions?
• What are your policies on retaining and incentivizing key employees?
• How do you measure the success of an acquisition?
• What challenges do you foresee in integrating our companies?

Framing the Conversations

When engaging in these discussions, keep the following points in mind:

• Approach as a collaborative discussion, not an interrogation. The goal is to find a good fit.
• Express genuine interest in understanding their approach and vision.
• Frame questions around your key priorities - whether that’s employee retention, growth opportunities, or cultural preservation.
• Be prepared to discuss your own vision for the company’s future and how you see yourself fitting into it post-transaction.
• Be open about your goals for the transaction, including any desires for continued involvement.
• Inquire about their experience in your industry and with similar-sized companies.
• Discuss their plans for supporting growth and any specific capabilities they bring.
• Be prepared to share your thoughts on industry trends and growth opportunities.
• Remember that these conversations are two-way - you’re also selling them on your company and team.
• Don’t hesitate to ask for clarification or follow-up on any answers that seem vague or concerning.

Conclusion

By thoughtfully preparing and framing these discussions, you can gain valuable insights into potential buyers. This approach helps in identifying the best cultural and strategic fit, not just the highest bidder.

Remember, the goal is to find a buyer who will not only provide fair value for your company but also respect its legacy, take care of its employees, and position it for future success. Moreover, you want a buyer who has the ability and commitment to close.

Ultimately, the right buyer should align with your vision for exit, demonstrate a clear understanding of your business and industry, show a strong ability to close the deal within a reasonable timeframe, and offer a compelling plan for future growth and success.