10 traits that make the perfect buyer

Get this one thing right, and selling your business just got much easier.

That's the quality of the buyer.

A good quality buyer has a clear strategy to buy you, urgency to buy now, funds available, a clear plan to integrate you and you are aligned on values.

They will come in with a fair price and stick to it. You will agree on a structure and negotiate the key points easily. The deal will move through diligence without fuss.

There will always be bumps along the road, but you have a really good chance of the deal completing on good terms.

And the opposite holds true. If your buyer isn't the right fit for your business, has a bad reputation or the timing is wrong, the deal will be an endless struggle. You will wrangle over price and other terms, with lots of conflict through due diligence. And you'll have a much higher chance that the deals falls apart (more on that here).

What traits make a good quality buyer, and how can you spot them?

Let's run through the top ten traits you should look for in your buyer.

1) Strong strategic rationale

You want a buyer with a clear and obvious strategic reason to buy you.

Of all the factors listed here, this is the most important and the one you don't want to compromise on.

You want to be a key part of their strategy, where your business is a critical piece in achieving their long-term goals. Ideally you want to sense some desperation too...

Check out The SIX strategies that drive M&A to understand more about strategic drivers of deals. That can be entering new markets, widening their product portfolio or filling a technology gap.

A stronger strategic rationale makes it more likely they will pay a premium and meet your other demands to get the deal done.

2) The right timing

The timing has to be right.

If the acquisition is a key part of the buyer's strategy, but the timing isn't right then you won't get very far. You are a 'nice to have' only.

You want urgency from their side, along with the strategic fit.

If you have both you are in a great position.

3) Senior support

You want the CEO and other senior executives to really want the deal to happen. They can push the deal through the internal approval process and will drive the M&A team and advisors to get the deal done.

If you're lacking support from the top, you will always worry that the deal will get blocked (or the key terms revised) when you get to the management committee sign off.

4) Experience in M&A

It's not ideal to sell to an M&A virgin. They are inexperienced, and are easily spooked. You can expect headaches – they might get lost in the DD looking in the wrong areas or suddenly get spooked.

On the flip side, an experienced buyer has a much higher chance of closing the deal. You're dealing with professionals. They have M&A expertise in house, and will move quickly through the process and won't waste your time.

But beware...if they've done many deals, that experience makes them savvy. So there's a risk you get trampled on through the negotiations if their expertise far outweighs yours.

Read more in Four types of M&A buyers.

5) Secured funding

You want a buyer with the cash reserves to fund the deal.

If your buyer is reliant on a third party for the cash to pay you, that brings additional risk you don't want. The bank or investor can pull out or change their terms, which can kill your deal.

And even if they don't, the buyer's cost of funding can be reflected in the price they are willing to pay.

If there's a deferred payment element to the deal, you also want to know that they will be good to pay that amount when it comes due. Will they have funds to pay that, or would they need to go back to the bank again?

6) Simple integration process

Ideally, you want your business to be an easy fit into the buyer's operations, and for them to have a clear plan for how they will do that.

Sometimes, the integration is more complex – like deep technical migrations, or dealing with a large number of staff transfers and redundancies.

This complexity can lead to more scrutiny during due diligence and increase the risk of the deal being deemed too difficult.

7) Good reputation

If your buyer has done many M&A deals before, you want them to have a good reputation with the sellers they bought from.

Did they treat the sellers and management fairly during and after the deal? Did they stay true to what they promised about how they would run the company post-deal? Did they turn to litigation and threats if something went wrong?

8) Low completion risk

Ideally you want a buyer with no (or minimal) regulatory hurdles to closing the deal.

Some deals will need to delay completion so that regulatory approvals can be obtained. The most common is anti-trust, but there may be others specific to your deal's situation – especially if you are in a regulated industry. Your buyer may also need to delay completion to secure funding.

That means what whilst the deal is all agreed on signing, the completion (payment and transfer of ownership) can only happen later. And if the approvals don't come through, the deal can't close.

9) Aligned on vision

The last two points apply if you expect to do a deal with an earn-out component, or if you are retaining some equity in the business.

If so, it matters a lot that you will be 'on the same page' as the buyer regarding the future of the business. You need to be aligned on the plans for the business, how the business will be staffed and how you will work with the buyer's group.

It's really common to have disagreements here, and that can threaten the value you get post-deal.

Corporate culture is also important, and worth flagging here.

You want to feel that there's a match in values, management styles and workplace environments. If the cultures are really incompatible, that will cause friction after the deal is done.

10) Can support the business to grow

Similarly, you want a buyer who can support the business after the deal.

If they can help you grow the business and improve profits, the value of your retained equity or earn-out will be much higher. You will learn about this as you get into discussions around synergies with each buyer.

Finding the 'perfect' buyer

There are a lot of factors here!

Finding a buyer that ticks every single one of these boxes might be asking too much. Sometimes, just finding any interested buyers at all can be tough...

When you are considering a sale, you really want to find a buyer who gives you strong signals across most of these areas, with no major red flags. These buyers are hard to find, but they offer better price, terms, and a higher chance of closing.

If you have to choose one factor that's more important than others, it would be the first in the list – a strong strategic motive to buy.

How to evaluate a buyer

Some of these factors are easy to evaluate from a distance or with some quick research. Others will come out naturally in your discussions.

But some will require you to proactively ask the buyer. Confident and empowered sellers will run through a process called Reverse Due Diligence. You flip the script and ask questions of the buyer, to help you evaluate whether they are the right fit for you.

Read more about that here: How to do Reverse Due Diligence on your buyers.