Notes for Owners
Selling without going to market
We are a buyer. We benefit when an owner sells to us directly instead of running a competitive process. You should read what follows knowing that, and it is exactly why the first half of this page argues the other side.
What a good banker actually does
The case for a process is stronger than most direct buyers will admit to you.
- Competitive tension is the only reliable way to find the top of the market. Not the average buyer, the one buyer with a strategic reason to pay more than everyone else. You cannot find that buyer alone, because you do not know who they are, and the ones who want you most rarely knock first.
- Price discovery. Without competing bids you are negotiating against your own guess. Owners who skip a process usually do not know whether they left money on the table, which is a different thing from not leaving any.
- Process management and pace. A good banker keeps a deal moving, manages diligence requests so they do not consume your management team, and creates deadlines that force buyers to act.
- They absorb the friction. Someone else delivers the bad news and pushes on price, so you can still be in the room with the buyer afterward. This matters more than owners expect when they are going to keep working with the buyer.
If your business is clean, diversified, growing, and genuinely attractive to more than a handful of buyers, and you can tolerate six to twelve months, run a process. The fee will very likely pay for itself. That is not a hedge, it is the honest answer.
What it costs you
The fee is the smallest of these, and it is the only one anyone mentions up front.
Six to twelve months is normal from engagement to close, and the heaviest part lands on you and your CFO precisely when you also still have to run the business. Businesses that miss their numbers during a process get re-traded on the way out.
Every additional party is a leak surface. Competitors receive teasers. Employees notice the conference room time and the unfamiliar visitors. Referral sources hear you are selling before you have decided to. This is often the real reason an owner chooses a quiet path, and it is a legitimate reason.
You will tell your story many times to people who will not buy. Some bidders bid high to win exclusivity and then find reasons to reduce the price once you have stopped talking to everyone else. A high first number is not a price, it is an option.
A process is hard to quietly abandon. Calling it off is itself information, and it is visible to everyone you contacted.
The honest trade
A well-run competitive process usually produces a higher headline price than a one-on-one negotiation. What a direct deal buys you is speed, privacy, certainty, and control over who ends up owning the thing you built. If price is the only variable you care about, run the process.
The reason a direct deal is not simply worse is that headline price and realized proceeds are different numbers. A direct deal typically has fewer parties, less diligence theater, a shorter path to signing, and less opportunity for a re-trade. Net of fees, net of the months, and net of the risk that the whole thing falls apart in month eight, the gap narrows considerably, and for some owners it closes.
It also matters who ends up owning it. A process optimizes for the highest bid. It does not optimize for who will keep your staff, who will keep the name on the building, or who will still be there in five years. If those matter to you, they are worth real money, and only you can price them.
If you skip the process, do these five things
- Hire a transaction attorney anyway. Not your general business lawyer, someone who closes M&A deals regularly. This is the one cost you should never cut. It is a fraction of a banker's fee and it is where the actual risk lives.
- Get your own quality of earnings. A sell-side QoE, or at minimum a serious CPA scrub, before you negotiate. It stops the buyer's diligence from being the first time anyone questions your numbers, which is how re-trades start. Our note on defensible earnings covers what usually moves.
- Decide your walk-away number in writing before you begin, and give it to your spouse or your attorney. Deal momentum is real and it moves people off numbers they were certain about.
- Do not give long exclusivity for free. If a buyer wants sixty or ninety days of exclusivity, that has value. Ask for a deposit, an expense reimbursement, or a shorter window with extensions tied to milestones.
- Verify the money before you stop taking calls. Ask who is funding this, whether they have closed deals with this buyer before, and whether the equity is committed or still being raised. A buyer who cannot answer this crisply is asking you for a free option on your business.
That last point applies to us as much as to anyone else. Ask us the same question and hold us to the same answer.
BDE Capital is an independent sponsor. We acquire lower middle market companies in healthcare services, B2B services, and trade schools, and hold them long term, without a fund clock forcing a sale in year five.
We are deliberately not a broker and we do not run auctions. We are usually the right call when an owner values a quiet, certain, direct path and wants a say in who takes over. We are usually the wrong call when an owner's priority is finding the single highest bidder in the market. Both are reasonable priorities, and we would rather tell you which one you have than win a deal you should not have done.
Send a one-page summary, or just tell us what the business does and roughly what it earns. Nothing confidential at this stage.
If it looks like a fit, we sign your NDA or your banker's. Then we want a CIM if you have one and three to five years of P&L if you do not. That is enough for a real answer. Tax returns, customer lists, and anything involving your employees come much later, or not at all.
The answer is usually fast, often the same day we see financials, and it comes with a number and the reasons behind it. Most of the time the answer is no. When it is, you get the reasons in writing. At no point do we contact your employees, your customers, or your vendors, and anyone we bring in to look signs the same NDA you signed with us.
On the money, since one of these notes tells you to ask: we are an independent sponsor, so capital is raised against a specific deal rather than pooled in a fund. That is exactly why there is no clock forcing a sale in year five. If you want to know who is behind a deal before you give anyone exclusivity, ask, and we will tell you.
You will hear back within two business days.
If you are thinking about a quiet path, we will tell you honestly whether we think you should run a process instead.
team@bdecap.com