What kills a business sale is rarely the price

The work that prevents this is unglamorous and it happens before anyone goes to market.

It starts with the adviser understanding the business intimately. Not a summary, not the headline numbers, but the detail that a buyer will eventually go looking for. Everything else depends on it.

That understanding is what makes it possible to approach a wider and more appropriate set of buyers, because you can only identify who should want a business once you understand what it actually is. It is what allows the business to be positioned for the needs of the market rather than described in the owner's own terms. And it is what allows diligence questions to be anticipated and answered with data at the outset, rather than discovered under time pressure three months in.

That last point is the one that decides most processes. Every question a buyer asks that cannot be answered promptly costs days. Enough of them, and it costs the deal.

What preparation looks like in practice

Late last year CKM Advisory ran the sale of Entain Venues, operator of the Australian Poker League, for Ladbrokes, part of Entain Plc. The mandate started in September and the client wanted a signed transaction before Christmas, leaving roughly three months to market the business, engage buyers and negotiate terms. It signed before Christmas and completed the following April at A$15.7 million.

Three months is only possible when the preparatory work has already been done. The compressed timetable was not achieved by moving faster through the same steps. It was achieved by removing the delays that normally sit between them.

The buyer list is shorter than the client thinks

There was a second element to that mandate worth noting. Entain had taken the business to market previously and believed the buyer pool was exhausted.

It was not. More than fifty parties were approached after mapping the buyer universe and screening a proprietary database. Of those, roughly ten were names the client would have produced themselves. The three bidders who reached the final stage had varied backgrounds, whether high net worth individuals, private equity or trade buyers, and the eventual purchaser was new to the asset entirely.

Owners are consistently confident about who would buy their business, and consistently wrong about the size of that group.

The ten are also predictable. They are the direct competitors, the largest customer or the supplier who has hinted at it. That list is assembled from what an owner encounters in the ordinary course of running the business, which is a reasonable way to build it, but still an incomplete one. It contains nobody the owner has never had cause to meet.

The other forty are the ones with a reason to be interested that the owner has no way of seeing: a buyer assembling something adjacent, a fund with a thesis about the sector, an individual looking for exactly this size of business in exactly this market. Being able to identify them is a function of the same preparatory work, not a separate exercise.

Both outcomes come from the same source. A process that runs to time and a buyer list that runs to fifty are not two achievements. They are the same work, which is someone having understood the business in enough detail, early enough, to answer questions before they are asked and to know who should be interested before anyone is approached.

The owner who could name ten buyers was not wrong about those ten. They simply had no way of knowing about the other forty, because that knowledge does not sit anywhere inside the business.

None of which is salesmanship. It is work done before a sale starts, and it decides most of what happens afterwards.

CKM Advisory advises business owners on the sale of privately owned businesses. The firm is led by David Morgan, previously in senior mergers and acquisitions roles at J.P. Morgan and Highbury Partnership.

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