Benchmark Business Group

Avoiding Exclusive Deals When Selling Your Business

April 10, 2024

Selling a business is a significant decision for any owner, but one of the gravest mistakes they can make is falling into the trap of a proprietary deal.

What exactly is a proprietary deal? It's when acquirers persuade owners to sell their businesses without creating a competitive marketplace. In this scenario, acquirers hold all the cards, knowing they face no competition they often start with an attractive offer, however as they begin due diligence, they begin identifying reasons to make weaker offers with more unfavorable terms, confident that no one else is bidding.

Many unsuspecting business owners, excited and flattered to have been approached out of the blue with an offer, find themselves ensnared in a proprietary deal without realizing it. It often starts innocuously, perhaps with a senior representative from the acquiring company approaching the founder, showering compliments on their business. A casual lunch leads to the exchange of high-level financials, and before they know it, the owner is on a path that's hard to retreat from.

As the relationship between the parties develops, founders may unwittingly divulge information that puts them at a disadvantage during negotiations. These interactions, disguised as friendly exchanges between industry peers, can result in the business owner revealing critical facts that are later used against them. The more emotionally invested owners become in the selling process, the harder it is for them to extricate themselves from these deals.

So, how can you avoid falling victim to a proprietary deal? First, if you’re ever approached by an interested buyer, get an independent valuation of your business. Knowing the value of your business on the open market enables you to understand if a proprietary deal is favorable to you, or to the acquirer. When it comes to selling your business, what you don’t know can hurt you! Savvy sellers get their facts and steer clear of exclusive arrangements by working through a reputable broker to package their business and initiate a competitive process for the sale of their company.

Understanding the market value of your business is crucial for evaluating offers. If selling is on the horizon within the next few years, obtaining a professional Opinion of Value is recommended. Additionally, presenting your business information professionally and marketing it to a broader pool of qualified buyers increases the likelihood of maximizing the value you get for your business.

While it may be flattering to receive interest from a respected company executive, accepting their invitation to lunch can inadvertently lead to becoming entangled in a proprietary deal. By remaining vigilant and proactive in planning the sale of your business, you can avoid the pitfalls associated with exclusive deals and secure the best outcome for yourself as the seller.

Talk to a Benchmark Business Group Advisor today to learn more about designing your business to have more value, or preparing to sell your business.

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