Competing against cash offers
June 13, 2024
by a searcher from Colorado State University in Fairfield, CT, USA
As a self-funded searcher using SBA debt financing, I'm competing against multiple all-cash offers on a deal I like. The seller doesn't want to wait on SBA bank to approve financing if they don't have to. How can I make my IOI competitive in this scenario? I'm thinking the following are in order of relevance to the buyer. Am I missing anything or is there another way to approach this?
a) Offer higher price than asking
b) Demonstrate willingness to close fast, with LOI exclusivity contingent upon me hitting milestones at day 30, 45, etc. so seller can get out of agreement if they don't like my progress
c) Indicate my interest in retaining existing employees and growing the business as is, compared to a strategic or PE shop that would likely cut some of the team
d) Prove relevant industry experience and competence to show that I can lead the next phase of growth for the business
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
I would recommend still making a fair and reasonable offer so you are on the record as being interested in acquiring the business. I would point to everything you believe makes your offer strong. I would not overpay for the business though. Like DyShaun stated above, you do not want to set yourself up for failure by over-paying for the business. Who knows, maybe they will meet you and end up accepting your offer. Even if they do not, by getting your offer on the record, if something falls apart with the offer they have then they might come back to you. Also, keep in mind I have seen many deals where clients have been told by the broker there are multiple cash offers, and in the end they still end up winning the deal because the seller does not like the people making the offers or in some cases because those offers never materialize.
Two other things you could consider offering if it is something you would consider and the seller might consider that do not create a ton of risk to you. First, you could offer a partial business acquisition and look to keep the seller in for less than 20% and then pitch the seller on how you plan to grow the business and give them the shot at getting another bite at the apple later. This will only work if it is something the seller is interested in though. Secondly, you could do a seller note that you use to pay a higher price with forgiveness built into it and tie that forgiveness to future performance. So long as it is on standby for at least two years lenders will not count it in debt service and if performance metrics are not hit you do not have to pay the seller. But this would give the seller the chance to earn more later if you grow the business without paying a higher price at closing and creating risk for yourself. Namely, you only end up having to pay the seller more money if the cash flow is there and the business performs.
I hope this helps. If you would like to discuss further please let me know. You can reach me here or directly at redacted Thank you and have a great day!
in Stuart, FL, USA
The hard truth is, most times you will lose out to a true cash buyer as their position of strength is greater than yours. Yes, they may beat up the seller a little more because of this "strength" position but if it is a good business, the seller will fight that fight before hoping you can get financing. What you can do is stay in contact with the broker or seller in case he gets tired of "cash buyers" that don't close.
Something else you can do is to prove your ability to close (meaning proof of funds for the down payment and post-closing liquidity, resume/bio and/or credit report). Give that to a number of good brokers that get the bigger deals and ask them to alert you the minute they get an "pocket listing" (one that doesn't necessarily make it on the boards so the broker can make both sides of the deal). The broker "should" in theory appreciate that you are not trying to waste their time by providing them with your ability to close. A little bit of forthrightness goes a long way.
Far too many buyers come to the table with no money/very little money of their own, needing to get funding for the down payment, no experience, and a massive chip on their shoulder and they want the sellers and brokers to bend over backwards to them as if they are owed something. If you were a seller or broker, who would you rather work with?