DirectExit pre-vets buyers for their financial ability to complete acquisitions. But financial capacity doesn't necessarily mean a buyer is the right match for your company.
The questions you ask will change as conversations progress. Here's where to start, what to ask along the way, and what to look for if an offer comes in. Keep in mind that this isn't always a straight line. You'll revisit some questions as you learn more about the buyer and what a potential transaction might look like.
On DirectExit, buyers come to you. When a buyer asks for a connection, you can see their buyer profile. That's your first look at who they are and whether their investment interests align with your business.
Start by looking at two things: their experience in your sector and their investment criteria.
Do they have direct experience in your industry? Look for evidence in their past or current holdings. Go to their website and look at the companies they own, or review the material on their buyer profile. If they don't have direct experience, do they have a current investment thesis that explains why they're interested in your sector?
Next, look at their published financial criteria. Private equity firms and other acquirers often publicly disclose their "strike zone," meaning the revenue and EBITDA targets they look for. (If you're fuzzy on how buyers look at EBITDA, read what adjusted EBITDA is and why it drives your valuation.)
If they're looking for companies much smaller or larger than yours, you've got a fair question about whether your business fits their acquisition strategy.
Remember, DirectExit has already screened buyers for financial capacity. At this stage, you're looking for alignment between their investment interests and your business, not trying to independently establish whether they have the money to complete a transaction.
Once you've accepted the connection, start with the questions that tell you why this buyer is interested in your company and whether there's a real fit.
That last question is particularly important. Even if you've verified that the buyer has experience in your sector, you should still understand why they're interested in your specific business.
Understand their plans. Once you've established why they're interested, turn to what an acquisition would mean for the business you've built:
The answers will help you understand whether the buyer intends to preserve your company's independence, integrate it into another business, or pursue a different operating strategy.
If your company would become a new platform investment, ask about the buyer's growth strategy, including acquisitions versus organic growth, and their typical holding period. If you'd be an add-on to an existing business, ask how integration would work and what your role would look like.
Watch for red flags. A credible buyer should be fairly transparent about its acquisition experience and track record. You should be able to learn about the types of companies it owns or has acquired and get a straightforward explanation of its acquisition strategy.
If a buyer is opaque about its track record, current holdings or intentions for your business, that's a red flag.
Plenty of owners want to open with "How much are you going to pay me?" That's not the wrong instinct.
Ask about valuation sooner than later. If initial conversations go well, ask: What's your process for preparing an initial offer for my company, and how long does it take?
You don't want to spend a lot of time with someone who's not serious, and you should be careful about how much information you hand over before you understand their intentions.
Once you've shared enough preliminary information for a buyer to evaluate the opportunity, it's reasonable to ask for an initial indication of value. A serious buyer should be willing to discuss its valuation approach and explain what additional information it needs to develop a proposal.
Don't wait until you've gone through rounds and rounds of requests to find out whether you're even in the same ballpark.
So you've received an offer. Now it's time to look beyond the headline purchase price.
Some of these questions may have come up in earlier conversations. Others should be addressed in the offer itself. If the terms aren't clear, ask for clarity. You'll need all possible info to understand what you're agreeing to, particularly if you have multiple offers to compare.
Financing and transaction structure. How will the buyer finance the acquisition? A private equity firm might use committed fund capital, while a family office or strategic acquirer might rely on a different financing structure.
Then look at how the transaction itself is structured:
Is your company going to be merged with an existing holding, or will it become a platform investment? If you want to retain ownership, how much equity could you roll over, and would any rollover be required?
Your company and your people. This is where you should ask for more detail. How will employees be treated? Will they continue to have jobs? Could they participate in the investment? What role, if any, will you have after closing?
Timing and exclusivity. Ask how long the transaction is expected to take, how much time the buyer needs for due diligence and whether you'll be required to negotiate exclusively with them. Understand what that exclusivity would mean before agreeing to it.
Costs. How much will the process cost you? In most transactions, buyers and sellers are responsible for their own legal, accounting and advisory expenses. However, cost-sharing or reimbursement provisions can sometimes be negotiated, so make sure you understand any expenses you may be expected to cover before agreeing to the terms.
Approvals. Does an investment committee or board of directors need to approve the transaction, or has it already been approved? Are any third-party regulatory or other approvals expected? Knowing what's still outstanding helps you evaluate how certain the proposed transaction really is.
Finally, ask to speak with previous sellers. Before moving forward with a letter of intent, ask whether the buyer will let you speak with owners of businesses they've previously acquired. Speaking with owners who have previously sold to the buyer can give you a clearer picture of how they handle negotiations, what happens after closing and whether they follow through on their commitments.
Not every owner on DirectExit is ready to sell tomorrow.
If you're just exploring what a sale could look like for you and your company, you don't need to work through every question about transaction structure, financing, or due diligence right away.
Start by understanding who's interested in your business and why. Ask about their acquisition experience, what they look for in a company, and what their plans might be if they acquired yours.
You can also ask what information they'd need to prepare an initial proposal. That can help you understand how buyers would evaluate your business and what you might need to prepare if you decide to pursue a sale.
The goal isn't to negotiate a transaction before you're ready. It's to learn enough to make an informed decision about whether, when, and with whom you might want to move forward.
Still deciding whether to sell at all? Start with why you'd want to sell your business.
A buyer reaching out is a starting point. DirectExit has already screened buyers for financial capacity, but it's up to you to determine whether they're a good fit for your business.
Ask why they want your industry and your company, what their plans are for the business and your people, and how they approach acquisitions. Then talk about valuation early enough to know whether you're aligned.
A credible buyer should be able to explain its track record, acquisition strategy, and process for developing an offer.
You don't have to be ready to sell to start those conversations. DirectExit gives you a way to explore buyer interest on your terms.
Join DirectExit and create your free, confidential business profile to connect with qualified buyers and begin exploring your options.