Signs a Potential M&A Buyer is Just Window Shopping

Selling a business is not like selling a product. The M&A process takes months, and sometimes years, requiring the dedicated attention of M&A advisors or a business broker, as well as a team of legal and accounting experts. While this expertise can greatly increase the value of the sale (and reduce the risk of a merger catastrophe), it also costs money. Unserious M&A buyers waste precious resources. They can also put your business at risk when they gain access to competitive secrets, or when a deal falls apart in the public eye.

Working with a trusted advisory team who can pre-screen buyers can help you avoid the dreaded window shopper. It’s also important to know the signs. Here are the brightest red flags.

The Buyer is a Competitor

There’s nothing inherently wrong with selling to a competitor. In fact, in many cases, this is actually your best possible buyer. They already know your industry, have experience running a company like yours, and may realize unique synergies from the merger.

Still, selling to a competitor should give you pause. Proceed slowly, with appropriate NDAs. Don’t reveal everything all at once, and make sure you’re working with an experienced team. If your buyer is a competitor and you start to see other red flags, you may want to pump the brakes.

This is a First-Time Buyer

As with competitors, there’s nothing inherently wrong with a sale to a first-time buyer. First-time buyers, though, lack the experience necessary to understand deal-making norms. This may disrupt the process. Some first-time buyers are not particularly skilled as entrepreneurs, either, and may have difficulty getting financing. Spend significant time screening these wild cards before moving forward.

The Process is Slow, and the Buyer’s Requests are Unclear or Inconsistent

Window shoppers, by definition, don’t want to actually buy (whether they realize it or not). So the process moves along more slowly than it should. They may send random, incomprehensible due diligence requests. They might go missing for a time, back out and then return again, or be reluctant to sign anything that commits them to a timeline or any financial arrangements. If a buyer wants to slow down the process, ensure there’s a valid reason. Otherwise, trouble may be brewing.

Financing is a Problem

If your buyer cannot get financing, you might be tempted to work out alternative arrangements, such as owner financing. When a buyer lacks the ability to get a bank to back their plans, though, consider whether they’re really the right purchaser. Sometimes the problem is a tight credit market. More often, it’s an inexperienced buyer with a weak business plan, weaker financials, and little hope for successfully running (or even closing on) your company.

The Buyer Lacks Expertise and Support

Thoughtful buyers who take transactions seriously hire buy-side support. Buyers who don’t hire experts, or who don’t heed their advice, may lack the skill necessary to run a business. And they may back out of the deal at the last minute.