"I'm going to get an offer," an entrepreneur recently told me. "They're real eager to close." In this case, it's a consulting company and the principal would like to sell. Without benefit of a firm offer, he wants to move forward with the one buyer and "negotiate" a deal.
This is a service business. The value of the business to a buyer is less certain than a product company delivering EBIT, especially since all of the billing is being done by the selling principals. The whole question of what is being bought will become a large part of he sale discussion. It is a complex question.
In my view, there have to be two competing buyers to make sure the company is getting a market deal.
The proposed buyer is a service provider in another field. (Think lawyers and accountants, for instance.)
So, if this company is willing to make an offer, why shouldn't the entrepreneur just be willing to listen to it and make a value-based decision?
I do think there are metrics (rules of thumb) that bracket the reasonableness of an offer. They inevitably work toward averages. (One to one and one-half times revenue for an accounting firm billing at least 85% of capacity at 3x salary, etc.) But if you are the best at what you do, is a rule of thumb average really what you want?
The leader of the company has built it on the basis of hard work, diligence and world class results. Assuming, of course, that this can be transitioned to new people, what is the value of the company? If there is intellectual property that can be captured, what is that worth?
Without two prospective purchasers to talk to, he will never know.
It is real work to find another buyer while keeping the first one warm. It's possible that the effort may fail. But by applying the same level of hard work, diligence and excellence that built the business, it's highly likely that the effort will succeed.
We don't buy anything - from a can of peas to a house - without comparing prices and features, but...
Should we suspend this basic principle when it's time to sell?