Buyer search examples: ten fictional decision points

These buyer search examples are fictional. No real buyer, business, intermediary or deal is described. The ten scenarios illustrate decision points in a business acquisition search; their timelines and details are illustrative, not reports of real transactions. Each search went wrong or right at one identifiable point, followed by the reasoning that point deserved.

What to take away

One: the listing became the criteria

A buyer started looking without writing anything down. Three months in, a well-presented business appeared in a sector they knew nothing about, priced within reach. They spent two months on it and withdrew when they realized they could not judge whether the customers would stay.

The reasoning: a search with no written criteria has no way to say no, so the first attractive listing supplies the criteria by default. If the criteria should change, change them deliberately, on paper, before opening a package, not because a package arrived.

Two: the price fitted, the deal did not

The asking price was affordable. The buyer had not counted the working capital the business needed on day one, the advisers' fees, or the transition period when the seller would be paid to stay.

The lender would only advance against verified earnings, which came out lower than the listing claimed. By the time the total was added up, it was out of reach.

The reasoning: the price is the largest single number and the smallest useful one. The number that matters is the total cash the purchase needs, which acquisition financing explains from the lender's side. Work it out before the first meeting, not after the letter of intent.

Three: the exclusive off-market approach

An intermediary offered a buyer a business that was not on the market and would be shown to nobody else. The buyer moved fast, out of a sense that the opportunity was rare. At the first meeting the seller mentioned, in passing, the other parties who had already seen the same package.

The reasoning: off-market describes how a business is marketed, not how many people are looking at it. Ask the intermediary how many parties have received the package. Then ask the seller. If the answers differ, you have learned something useful about the intermediary.

Four: the eighteenth month

A buyer who had searched carefully for a year and a half began accepting things they had rejected in month two: a larger owner dependence, a shorter lease, a customer list they could not see. Nothing about the businesses had improved. The buyer had.

The reasoning: the eighteen months are gone whichever business is bought, and they say nothing about the one under review. This is the sunk cost pattern in its purest form. The defense is a scheduled review, held on a date fixed at the start, at which the criteria are either reaffirmed or changed on purpose.

Five: the last bidder at the table

Three parties bid on a business. Two withdrew during diligence. The third, pleased to have prevailed, completed. Six months later they found what the other two had found.

The reasoning: when informed bidders leave after seeing the same information you have, their departure is data. Ask the intermediary why. Ask the seller. Then ask your own accountant to look again at whatever the answer points to. Prevailing in a contest is only good news if you know what the losers saw.

Six: the one-hour radius

A buyer restricted the search to businesses within an hour's drive, on the reasonable grounds that they wanted to run the thing. After a year, they had seen a handful of listings that met their other criteria, and bought none.

The reasoning: few businesses meet a full set of criteria inside a small area. A search that expects a steady flow from it has misjudged the base rate. The Wikipedia entry on the base rate fallacy describes that error.

Estimate honestly how many qualifying businesses come to market each year in the chosen area. Then widen the area or the criteria until that number can sustain a search.

Seven: the expert who could not buy

A buyer with long experience in a trade examined a dozen businesses in that trade and found real faults in every one: a process they would run differently, equipment they would replace, pricing they thought wrong. They bought nothing.

Expertise finds flaws. The question is not whether a flaw exists, but whether it is priced and where it should lead.

Every diligence finding ends in one of four places: a lower price, a change of structure, a condition to be met before closing, or a decision to walk away. A priced flaw is a negotiation, not a reason to stop.

Eight: the maximum said aloud

At a first meeting, wanting to be taken seriously, a buyer told the seller the most they could pay. The negotiation that followed started from that number and moved in one direction.

The reasoning: a seller who knows your ceiling has no reason to sell below it. State your position in writing, in the letter of intent, with the earnings basis and structure it rests on, and let the deal structure rather than the headline carry the conversation.

Nine: the fee that was saved

An owner-direct purchase, no intermediary, and a handshake on price. The buyer engaged a lawyer only to draft the agreement, weeks later. The lawyer found that the lease could not be assigned without the landlord's consent, which the landlord declined to give on the existing terms.

The reasoning: the intermediary, the accountant and the lawyer do three different jobs, and skipping one means doing it yourself, whether or not you are able to. The lease question belonged at the start. Discovering it at closing turned a saved fee into a lost year.

Ten: the search run as a project

A buyer wrote criteria, set a weekly hour budget, logged every listing, and fixed a review date. At the review, nothing had reached the package stage. They concluded the criteria were too narrow, widened one of them, and bought a business some months later that would have failed the original list.

The reasoning: this is the search as a project, and its value was not that it found the business faster. It was that when the search was failing, the log said so, and said where.

Common questions