How to build relationships with potential buyers
Why you should build long-term, trusted relationships with potential buyers before you want to sell. It's M&A gold.
How do you find a buyer for your business?
For most exits, connections with buyers come via two routes (often both in parallel):
- Contact from a company where you have an existing relationship
- By running a sales process where you cold contact potential buyers
It's a myth that buyers will miraculously appear out of thin air. A very small minority of deals happen this way, but it's not good advice to just wait and hope for buyers to come to you. More on that here: Are companies bought not sold?
Why long-standing relationships are key
For a company to want to buy you, you need to be on their radar. They need to know you exist of course, but also have a positive view of you as the owner, the leadership, the product and so forth.
Then at some point in the course of your relationship, they will tell you that they'd like to make you an offer, or you can raise the possibility with them.
That means that when you're ready to sell your business, you have multiple long-standing, open, trusted relationships with potential companies who could be great buyers.
When a potential buyer has known you for some time, there are huge benefits...
π Understanding your business
All of those small, informal conversations add up. They know how your business works, and it's easier for them to see the long-term value in what you're building.
If they've watched you grow and scale the business, they'll have more appreciation for you as a leader. They might also know and respect some of your management team.
Seeing the value, and respecting you as a leader, makes it easier for them to get excited about a deal, convince others internally an pay a higher multiple (so you get a better price).
If they understand the business, they can also be more targeted and specific in their due diligence process, speeding up the deal and saving everyone time and money.
π Trusting you personally
If you've built trust over time, they will be more inclined to believe your growth forecasts and the explanations you give them in diligence.
Again, that adds up to them being more keen to buy, and paying more.
Maybe they just like you, and want to work with you. That's a great motivator to getting a deal done too.
π Pitching and managing the deal
If you know their business, you understand their challenges and their strategy.
That is a massive help when you are pitching the deal to them, as you can clearly explain how building you can hit their strategic goals or fill a weakness. It also helps when arguing over the value of synergies.
Finally, if you know multiple people in the business, you can use those contacts to help you navigate the deal.
How to build these relationships
Investing in these relationships is M&A gold. It takes some skill, and a lot of patience, but it can pay huge dividends down the line.
The key point here is "long standing". It takes time to build trust and rapport, so it's not something you can start three weeks before you pitch them on the deal.
Start getting to know people early, as youβre growing the business. Be open-minded, cast the net wide to anyone to who could one day be a buyer. Speak to lots of people at different companies. And it's not just CEOs and Board members β you should be willing to get to know folks up and down the organisation too.
Be brave β you can ask for intros from your network, or just reach out cold with something specific to them and you've got a good chance they will reply.
If you're short of ideas for who to contact, see this article about The SIX strategies that drive M&A to give you some ideas for who could one day buy you.
A side point: donβt worry too much about them stealing your ideas. You would only really be sharing high level information, or things that they could find out from talking to customers or hiring some of your former team. If they start asking to dig into your code or other secrets, you can back off, but that's rare.
So, how do you start building these relationships?
Here are some ideas:
π 1) Partnerships
If you can, find a way for your two organisations to partner on a project. That's a great way for them to see you and your team in action, and for you to show off the value of your service.
That can be something ambitious and complex, like a product integration.
But it could also be something much more simple and informal. If you have customers that might value their product, you can set up a referral programme. You can do some co-marketing, or bid jointly on a commercial proposal. Or you could set up a simple affiliate partnership where you share details of their service with your audience.
π 2) Be helpful
Giving is better than receiving.
If you can engineer a way to be helpful to them, use it. It will create some goodwill, and make you seem smart and well-connected.
Here are some ideas:
- Introduce them if someone great you know is looking for a role
- Send them interesting pieces of industry press
- Give them a heads-up when you find a new piece of tech or come across and industry start-up
- Tag them in LinkedIn posts where relevant
π 3) Be sociable
Chances are that you and these potential people will be hanging out at the same networking events. If you have a similar customer base, you'll both be bored at the same dry industry conferences.
These are all good excuses to be sociable, say hi and kick start a relationship there, if you put yourself out there.
π 4) Ask for a mentor
If you find someone you'd like to build relationships with, you can ask them outright to mentor you.
Say that you admire them and the career they've had in your industry, share your story with them, and explain that you'd love for them to help mentor you and the company as you grow. Youβd be surprised how receptive most executives will be to your request.
That can be informal β meeting for coffee every few months. Or it could be a more structured (and paid) arrangement. Either is great.
π 5) Send them investor updates
You want to keep them in the loop of how your business is growing. After all, you want them to get excited enough to make you an acquisition offer!
If you have investors, you might send them updates on your performance and progress in the last period. You might also send something similar to your board or to your team.
It's harmless to flick these over to your contacts, probably once you have a relationship in place.
Nurturing the relationship
Now you've started the ball rolling, you just have to keep these relationships alive and healthy.
When the time is right, you can convert that relationship into an acquisition offer.