Why Sellers Shouldn’t Accept the First Offer

If a stranger knocked on your door today making an offer to buy your house, would you take it?

Probably not. But let’s run through this thought experiment’s possible scenarios:

  1. If the stranger’s offer is offensively low, you’re closing the door and dismissing the idea of a sale from your head.
  2. If the offer is ludicrously high, you’re closing the door and calling your neighbors to warn them about a scam.
  3. If the offer is the goldilocks of offers and is just right, we’ll venture that you’re still not accepting the offer right then and there, standing at your front door.

Why not take what seems like a great offer right off the bat?

Because if this potential buyer is willing to make that just-right offer for your house, then other buyers might as well. Because multiple offers are always better than one offer. Because by not accepting the very first offer, a seller is reasserting control in the transaction.

This example using homes and real estate is typically effective, especially for an audience of business owners. Most agree that it’s in the seller’s best interest to resist the first offer and solicit more.

Yet, for some reason, when it comes to the sale of a business, many business owners abandon this kind of strategic thinking. They allow the first offer to tempt them into a rash decision to sell without properly testing the market.

It’s a strange phenomenon, but it’s not uncommon. And if “strange” seems like a harsh (or biased) judgment from advisors like us, then consider this: even private-equity groups use advisors. These sophisticated groups would never consider selling one of their portfolio companies without the guidance, structure, and process that advisors deliver.

At Caber Hill Advisors, a key part of our process is the cultivation of a competitive auction. We solicit a deep pool of potential buyers who must compete for a winning offer. This structure allows the seller to dictate terms and take more control—a crucial asset, especially when dealing with the deeply resourced institutional investors with which many of our clients transact.

The benefits of a structured auction process cannot be understated, especially when put against our example at the top of a single offer from the first buyer on the scene. To break down those benefits a bit more, here are five outcomes we design structured auctions to deliver:

1. More Competition 

An advisor is your competitive advantage. With Caber Hill Advisors, our extensive networks of buyers and sellers help to level the playing field when transacting with the deeply resourced buyers who target the middle-market, privately-held businesses our clients own.

2. More Matches to Ideal Deal Terms

Control. Options. It’s good to have both when selling a business. And when you broaden the network with an advisor who’s understanding and advocating for your needs, you’re tilting the power balance to your favor.

3. More Types of Deal Structures

The highest price isn’t always the best offer—the terms of the deal are just as important as the price. And in today’s market, deferred payouts, equity packages, and earnouts are just some of the tools buyers now deploy in deals. All-cash deals are not as common as they were in 2019, so it’s important to see a variety of structures to understand what terms add up to the most favorable exit available. We advise and help sellers understand how to get the best price AND the best terms.

4. More Buyers to Pit Against Each Other

In one-off conversations with a buyer—like in our example from the top—the buyer has no incentive to come to the table with their best offer. Rather, in these scenarios, when the seller isn’t considering other offers, it is to the buyer’s advantage to hold back information.

5. More Movement in the Process

In the end, it’s all about timing. In solo conversations, there’s no set process and things can (and do) drag along. With a structured process, all parties are aligned to a cadence that moves the deal along at a productive but acceptable pace.

So if you’re a business owner of a middle-market company who’s considering a sale, and you get the proverbial knock on your door, it’s in your best interest to pause, take a deep breath, and call up an advisor. Caber Hill Advisors is your best way to level the playing field—to give yourself the best shot at taking home what your business deserves and exiting with control, on your terms.