Buying a Business in a Competitive Marketplace, how to Separate Yourself from the Pack?

By Gregory Kovsky

John Martinka, as one of Seattle’s most successful, knowledgeable, & experienced buyer’s brokers, and I, as the President of IBA, the Pacific Northwest’s oldest business brokerage firm, have collaboratively completed a significant number of transactions involving the purchase & sale of privately held companies, including one already in 2017.   John & I work well together because we are both familiar with the landscape of the transaction process, desire to complete “win-win” transactions, and can serve as resources of what is standard and fair in a transaction.

One competitive edge John’s clients have in pursuit of a business acquisition is they are prepared for the competitive purchase environment presently found in the middle market.

Will Rogers famously said, “You Never Get a Second Chance to Make a First Impression”.

This statement is true in most sales environments and applies to an entrepreneur desiring to purchase a business through a business brokerage firm serving the middle market.  The reality of the current marketplace for privately held companies is that sellers have choices regarding potential buyers for profitable, established companies.   It is therefore prudent for a business buyer to take the steps necessary to separate themselves from the pack, if they want to successfully negotiate a letter of intent and secure first position status to purchase a specific company from a seller.

The following are five common characteristics of business buyers who have successful purchased privately held companies in deals I have facilitated during my 23 years as a business sale intermediary:

  1. Listen More Than You Talk – Most entrepreneurs are confident and have a substantial ego. A buyer who recognizes this will check their ego at the door when meeting a business owner and place the spotlight on the seller encouraging them to talk about the business and their own personal history.  Everyone likes to talk about themselves.   A business buyer who makes an impression with a seller of being a good listener and student early in a transaction generally will lay the groundwork for future “good faith” negotiations and a positive transition period relationship.    Conversely, a business buyer who spends a significant amount of a first meeting with a seller telling them how great they are often will be the party left on the wall when a transaction “dancing partner” is selected for negotiations by the business owner.
  1. Create an Environment of Transparency for the Transaction – A buyer’s due diligence prior to purchasing a privately held company will result in the seller being asked to share a significant amount of confidential information.  This can be an uncomfortable process for a seller because they will likely be asked to share information about their business that they share with very few people.  A buyer that recognizes that this “uncomfortable” situation is on the horizon for the seller, can mitigate the level of discomfort by taking the lead in disclosing information early in the process providing the seller, commonly through their broker, with a resume, personal financial statement, list of their transaction team members, and any other information relevant to the transaction that they deem would increase the seller’s comfort with them as a potential negotiating partner.  Conversely, a business buyer who is guarded in the information they will share with the business broker representing a company and their client, will often be categorized as unqualified rather than qualified as a default.   The most important information to share with a business broker and their client is information on financial strength, liquid assets that can be deployed in a transaction, access to acquisition capital, and relevant experience.
  1. Assemble a Transaction Team – The most common players on a business buyer’s transaction team are an attorney, CPA, and banker.  It is prudent for a business buyer to assemble this team prior to engaging with business owners, so they are prepared to negotiate in “good faith” and move forward in a timely manner.   A transaction can be lost by a business buyer if a timely turnaround time on a letter of intent, preliminary due diligence, or an assessment of financing capability is not possible.   Many times, I have witnessed good, qualified buyers lose out on business acquisitions, even as the preferred buyer on a personal level by a seller, because multiple offers were being simultaneously negotiated and their attorney was slow to turnaround a document, their CPA did not complete a valuation in time for their client to get an offer on the table, or because a buyer was deemed incapable of getting a loan because they could not generate a letter of commitment from their preferred lender.
  1. Negotiate in “Good Faith” and Minimize Direct Confrontation – Business buyers & sellers each have a vested interest in negotiating in their own “best interest” in a transaction. The most significant place this occurs is on price & terms.  Successful business buyers recognize that there is value in being liked by the seller and having them committed to a smooth transition of ownership.   A “win-lose” negotiation runs counter to having a seller in your camp after the transaction is completed.  It is my recommendation that buyers negotiate in a manner that allows them to achieve the necessary transaction terms while at the same time mitigating confrontation.   Strong business sale intermediaries and attorneys will also assist this process by making the negotiation more administrative and less emotional and minimizing direct engagement between the parties in negotiations. Buyers should also remember that if they walk away from the transaction they will not complete the acquisition and start the process all over again.   If a seller walks away, they still will own the company and continue to make money until a sale is completed.  In short, the default setting for business sale negotiation is generally better for the seller than the buyer.
  1. Hold Information in Strict Confidence – It is in the best interest of both a business buyer and seller to keep information related to the potential sale of a privately held company out of the public domain as long as possible. A buyer who breaks confidentiality about a sale or has someone they have shared information with break confidentiality can jeopardize their transaction, as a common default by a seller to protect the business is to disclaim the information and pull the business from the market if it is deemed the information could damage the business.   The Pacific Northwest is a small community.   In a recent transaction John & I facilitated, a banker on the approval team for a loan was a long-time customer of a business being sold that did not know the company was for sale.  The sale came as a surprise to him.  The story had a happy ending, but is a prime example of how inadvertently information about a business sale can become known to a customer despite the best intentions of the parties.

Poor practices regarding confidentiality can also damage a business buyer’s relationship with a business brokerage firm.   IBA has a policy to disclose past confidentiality issues with a specific buyer to our clients prior to disclosing information to the party about a specific company being for sale.  It is common after that disclosure for our clients to indicate they do not wish for that party to receive information on their company.

As Will Rogers said, “You do not get a second chance to make a first impression.”  My recommendation to all buyers desiring to purchase a privately held company is to make the best first impression possible on the business broker representing the business and their client and to employ “best practices” whenever possible throughout the negotiation & acquisition process.

Gregory Kovsky is the President & CEO of IBA (  IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.  Mr. Kovsky can be reached at (425) 454-3052 or .   Questions regarding IBA or the purchase & sale of privately held companies are welcome.

Jealous Dogs and Jealous People

Last week we dog sat for our younger son’s two Golden Retrievers. Quite an experience with monsoon type rains for a few days that left four dogs in the house for most of every day.

These dogs are good friends. If we go on a hike or to the dog park they run around and play together. But in our house? Our Labrador got a bad case of “jealousy.” Any attention or affection to our guests caused him to come over and nudge us for similar affection.

Dogs are just like people in this way, aren’t they? Kids want what other kids have. Employees want what (they think) other employees have. Television shows like the Office are so popular because so many people can relate to the credit-taking, back-biting, and overall human frailties that come to the forefront when people work together.

All you have to do is pick up Inc. Magazine, the Wall Street Journal, or any other business publication in order to see how big an issue this is. Article after article on how people can better work together.

In my world of buy-sell deals I see this manifest itself in three main areas:

  1. Both sides feel the other side is getting more (than they are).
  2. Buyer and seller believe the other party is “nibbling,” always asking for a little more after a deal is struck (possibly a result of reason one).
  3. Wondering why there’s always a need for more information (from the buyer, the bank, the attorneys, etc.). Tip to sellers, buyers will ask the same question more than once not because they’re stupid but to see if they get the same answer every time.

Human nature, which is why many of us have businesses and jobs based on helping others overcome the “people issues” in their life and business.

“You fail all the time. But you aren’t a failure until you start blaming someone else.” Bum Phillips

Limited Information Solutions

For years I’ve loved listening to Car Talk on NPR, even now when it’s in a “best of” mode given one of the brothers died. While traveling this summer we had it on and during one call it hit me. The callers want a solution but very often don’t give the experts full information.

There are a lot of calls where near the end, i.e. solution time, one of the experts will ask something like, “By any chance was there a clanking noise from the rear of the car when the problem was occurring?” Ninety percent of the time, or more, the answer is, “Yes.” Now it’s time for the real, and accurate, answer.

Just like in my business, and I’m sure yours. Customers, employees, and others want an answer but they only give you partial information. I recently gave a client some advice, he said he wasn’t sure it would work, I asked why, and he then gave me the complete story of what was happening.

In the buy-sell world this can be dangerous, and get someone in legal trouble. When buying or selling a business a common term used is, “Open kimono.” It means we are baring all by giving the other side 100% of the information they need. If you don’t disclose everything you’ll not only pay the price (pun intended) but you’ll pay the attorneys and others.

The real problem is too many people want to appear to be intelligent so they start giving solutions based on limited information. It’s like if I give someone a stock answer on how to grow their business or if I tell someone what their business might be worth without knowing if they have 80% of their sales to three customers or spread out over 300 customers.

“I never knew anything about cars before I started listening to your show. I still don’t know anything about cars but now I don’t care.” Car Talk listener

Where do You Want to be in One Year?

I met with a group of clients in early November to “check-in’ as we head to the end of the year. The usual issues involve people, marketing and life balance. I only asked one question and we filled up two hours. The question was:

What do you want to be talking about in this meeting next year (in regards to what you accomplished and your new opportunities)?

As we head into the last month of 2016 take some time and answer this question for your business and yourself. No oversized business plan, no spreadsheets, just, “What do you want to be talking about next year at this time?”

Here are some of the answers from my clients:


  • More profits as we now have the foundation to be really profitable.
  • Growth, profits, and congeniality occurred.
  • Add new lines.
  • Grow the talent base and have a culture to encourage leadership (for the managers).
  • Get back on the traditional growth curve (after a year of resetting to do this).
  • Business transition.
  • Be able to say how well the new, full time operations manager is doing.
  • One new marketing strategy implemented.
  • New vendor relationship continues to thrive.
  • I’ve put my family first.
  • Get into one new market.
  • Add online offerings.
  • Restructure debt (given favorable debt climate) and add new equipment.

What are your answers? What do you want to be talking about next year at this time?

“When one is completely whole and at one with the world one does not need a mirror.” Lewis Mumford

Are You Ready For “Surgery”

On September 27, 2016 the Wall Street Journal published an article titled, “Doctors Give Pre-Surgery Orders to Get in Shape.” The first sentence is, “Are you healthy enough to have surgery?”

Let’s change that sentence to business terminology, as in, is your company healthy enough to:

  • Consider a growth strategy?
  • Grow by acquisition (the subject of my upcoming book)?
  • Go the market, to sell for what you want (as in the title of my book If They Can Sell Pet Rocks Why Can’t You Sell Your Business (For What You Want)?)?

One doctor quoted said, “We often bring patients into surgery without fully addressing their chronic medical conditions.” The same can be said for the above three questions, “We often undertake initiatives without fully addressing if the company, its owner, and its staff, are ready and capable (to implement the initiative).” So what makes a company not ready for “surgery?”

Growth: Besides a good product and solid reputation it takes a few other things to grow. On the top of the list are money and time. It’s hard to grow if your people are already stretched thin, especially if the skills you need are part of the tight labor market.

And growth sucks cash. It takes money to grow as you may need to buy new equipment, invest in inventory, hire more people, and wait for your (accelerating) accounts receivable to be collected. So, how do you grow if you don’t have the right people, enough capacity, and proper working capital? (Answer: you don’t, at least not effectively.)

Acquisition: It sounds simple, and I am a proponent of it¾grow by acquisition. In fact, in my upcoming book on the subject I list 19 reasons to consider it (if you want a copy of the list just request it by email). However, it’s not simple and it’s not for every business.

The stars must align, just as they do for other growth strategies. You need the bandwidth, the right people, cash, and patience. If the company isn’t ready with any of these factors you’re like the patient not ready for surgery. If your people have full schedules now how do you bring on another business? Plus, they have to be willing and able to integrate another firm, willing often more the issue than able. And then realizing it takes cash to buy another company. Now, cash isn’t as big an issue as with other growth strategies and here’s why.

Imagine you go to the bank, request a loan for $1 million so you can double your business in a couple years, using this money. You show nice projections, explain why it will work, etc. Many, if not all, bankers will be skeptical as they’ve seen every pitch possible. Now imagine you go to the bank with a projection showing you’ll double your business in one year by acquiring another company. A company with enough proven profits so your debt payments are only half of those profits. In other words, a lot less risk than sticking money into a marketing program. Think your banker will look at it a bit more favorably? (Darn right they will.)

Sell: This is the big one. Let’s face it, the vast majority of companies are not ready to sell for the price the owner wants. Perhaps they’re in the middle of a growth cycle and the seller wants to be paid based on the fact the growth will actually occur. Or, they don’t have the processes, people, or profits necessary. As I’ve written many times, and emphasize in my book, a company ready for sale should (must) have the following for the owner to exit with style, grace and for more money. The obvious one is profits. Lots of profits, especially sustainable profits, cover a few warts, which all companies have. Profits that will withstand a Quality of Earnings report. In addition I state there are three key issues.

  1. Reduced dependencies, especially any dependency on the owner.
  2. Solid financial systems and accurate financial statements (sounds easy but it’s amazing how many companies screw up this one).
  3. Not just talking about it but doing it. Proving it can be done and showing how.

But wait, there’s more. Since my book has some out I have a fourth reason, because of today’s tight labor market.

  1. Retaining and attracting great people. Having a culture where solid employees are seeking to work for the company versus having to scrounge around for someone to take the job.


Surgery is a major undertaking and it seems some doctors are recognizing not everybody is ready for it. Give your business an exam and see if you’re ready of your version of “surgery,” whether it’s growth, an acquisition, or a sale.


Buying a Business Works; M&A (Usually) Doesn’t

Gretchen Morgenstern in The New York Times wrote about how, “Blockbuster deals like Bayer’s $56 billion takeover of agribusiness giant Monsanto seldom live up to their hype.”  Her article was based on research of 9,000 major acquisitions, which showed an investment in the Russell 3000 stock index would have increased by 200% from 2001-2016, while an investment in firms making major acquisitions would have increased only 67%. (Disclaimer: I’m a supporter of the strategy to grow by acquisition for small and mid-sized companies and have a book coming out next year on this subject.)

It’s always different when you’re playing with OPM, other people’s money, as the executives doing this mega-deals are doing. Small business owners, using their own money or a personally guaranteed loan, are going to be a lot smarter about the company they buy, what they pay, and how they integrate the target company. In other words, as I like to say, in my market (versus the private equity and above markets) there are two sanity checks. One is the bank and the other is the buyer (it’s their money and guarantee).

In my upcoming book I cover 19 reasons to buy another company. I’m realistic to know all 19 will never fit a particular situation, but if there are a couple solid reasons it can make sense (to grow by acquisition). And the size of the acquiring firm shouldn’t be a factor. I’ve had clients with as little as $2-3 million in sale buy other companies.

It’s like any other business or personal decision, if it makes sense then do it. But don’t do it just for bragging rights, as it seems large-firm executives do.

“You can accomplish anything in life, provided that you do not mind who gets the credit.” Harry Truman

What’s behind your curtain?

Our son-in-law is a big city police officer (not Seattle) and recently was involved in a situation that will never make the news. He was in the second wave of officers responding to a 911 from a mother whose bi-polar teenage son was off his meds and threatening the family. He entered the bedroom, observed two other officers standing there watching the boy with a knife, ordered them get out their Tasers (and guns I’m assuming), and then he disarmed the young man, with no injuries.

As mentioned, this will never make the news. It’s not what most people want to see or hear.

In the Wizard of Oz the wizard is behind the green curtain. So, combining this with the above story, what’s behind your curtain others don’t hear about? Here are five things making your business what it is, for better or worse. Whether you’re selling your business, buying one (analysis of your target), or simply wanting to grow and make more money, it’s the behind the curtain things that really add oomph.

  • The big one in 2016, if not always, is the employees. Help wanted signs are everywhere, news stories about how there’s a shortage of skilled workers are common, and schools are implored to send people into the job market with useful skills. Your employees can be your secret weapon, and it’s important to protect them from poaching. It’s not just money, often culture rules over money. With up to 70% of employees not happy with their jobs (numerous reports including the Gallup study) if you have happy people do all you can to keep them, and keep them happy.
  • The term “a well oiled machine” refers to an operation with maximum efficiency. If you’ve created or refined a process that improves margins you’ve got something to brag about. I have many clients who are process people. They’ve streamlined their business so everything flows. I do the same thing with my clients. For example, with clients looking to acquire a company I give them a proven system to use (of course it’s up to them to implement their part of it as we implement our part). Like any process or system, it works when you actually do it.
  • “Your reputation precedes you” is a term you should strive for. A lot of company’s get jobs/orders without bids or quotes (or be the only company quoting the job) because the customer knows it will be a quality product at a fair price. You want to be the go-to firm in your niche.
  • Location is the factor in retail, as we all know from the saying, “location, location, location” as it applies to the three most important factors to success in retail. But it can be just as important in manufacturing, distribution, and many service industries. It’s why banks generally won’t make an acquisition loan for a term longer than the term of the lease, with options. Besides layout, to improve your processes, a huge part of the location question is traffic. Traffic patterns your employees take and, more importantly, the traffic your employees will face if you have crews, delivery people, or salespeople on the road. I know I add more cushion between meetings than ever before given unpredictable and overwhelming traffic.
  • Your use of technology is important. I see businesses who are surrounded by technology (computer controlled machines for example) and still track sales, do budgets and projections in Excel. The companies who use tools like Salesforce, ERP systems, and similar effectively and to the highest level possible for their business get more sales per employee than they would otherwise. Use, but don’t become a slave to technology. If it saves you time or money use it. If you find yourself bogged down in its minutia it means you’re overusing it.


Five behind the curtains things that can increase your profits or the value of your business, or increase your free time. Pay attention to them. They aren’t in the headlines like name customers or a well known product but they can be just as important.

Individuals or Teams? It’s Both (Part two)

In my last post I wrote about how teams are critical to success in sports, business, and actually other activities, and how individuals determine the success of the teams.

Earlier this year the New York Times Magazine published an article titled, “What Google Learned From Its Quest to Build the Perfect Team.” They did a five-year study, titled Project Aristotle, to find out “why some work groups thrive and others falter.” The article’s author is Charles Duhigg, who is also the author of “The Power of Habit” (a great book) and he also drew on information from other studies.

It took the researchers a long time to make any headway. They struggled to find what exactly made a team successful. They couldn’t find patterns. And then they found too many patterns, which is just as bad, or worse, than no patterns.

A major conclusion was there are two behaviors all good teams share.

“On the good teams, members spoke in roughly the same proportion, a phenomenon the researchers referred to as ‘‘equality in distribution of conversational turn-taking.’’”

“The good teams all had high ‘‘average social sensitivity’’ — a fancy way of saying they were skilled at intuiting how others felt based on their tone of voice, their expressions and other nonverbal cues.”

As I write this I’m thinking of some focus groups I facilitated for a client earlier this year. One day I had two groups of employees, with a pre-selected mix of management, production people, and admin staff. One group had a couple dominant people and the other had multiple people who could have become dominant.

The first group was a lot less productive. It was tough to draw out comments from the non-dominant subset. The second group had numerous outspoken people but they engaged in dialogue not control and more ideas flowed from this group. There was more of a willingness to speak.

It’s easy to say we all know what happens when one or two people in a group take over. Others shrink and just want to get the meeting over. But it seems there’s a lot more to it. And understanding how to make people gel for the common good is a true skill.

“When the enemy is making a false movement, we must take good care not to interrupt him.” Napoleon

Individuals or Teams? It’s Both (Part one)

The NFL season started last Thursday and a quick review of multiple games synopsis along with seeing some highlights showed 11 of the 14 games played through Sunday were decided by one score or less. About half of those came down to a big play at the end including last minute touchdown passes, missed kicks, bad snaps, a defensive stop, field goals as time ran out, and a two-point conversion, to win not tie the game.

Football is definitely a team game. Much more than basketball where one hot player can carry a game or baseball where a dominant pitcher is sometimes all it takes. As good as any player is in football it takes others to block, tackle, throw, catch, run, etc.

But it is also a game dependent on individuals. In the Sunday night game, a last second field was missed because of a bad snap. In one game a player mistakenly ran the ball down the field instead of out of bounds, with no time outs, and the clock ran out before a field goal could be attempted. And there were other such incidents.

Teamwork is great in business. At least 80% of the business buyers I’ve met say one of their strengths is building teams. This is important because, not all but, many business owners (especially founders) are not good at teambuilding. Too many owners are:

  • Do-it-yourself types
  • Autocratic
  • Unknowledgeable about delegation (so they just don’t do it)

Every business has teams and those teams are a collection of individuals, many of whom go their own way at their own pace (sometimes it’s like herding cats). Getting individuals to seek the common good is a trait that leads to great businesses.

Changing the culture can make a good business better and struggling business successful. I think it’s great when buyers come in and get people focused on the same destination and on the same track. It’s not a skill to be taken lightly. It’s something sellers should work on to increase the value of their company.

More on teams and their effectiveness in my next post.

“Things turn out best for the people who make the best of the way things turn out.” John Wooden

When We Make Decisions

Labor Day, our second “New Year’s” as schools are back in session, vacation season is over, summer is winding down, football season is starting, and people feel renewed.

I learned very early in my current business people will put off big decisions (buy a company, sell a company, implement major initiatives, etc.) during the summer and the holiday season. There’s too much other stuff going on, whether it’s your stuff or your employees stuff (meaning there’s more time off during the summer than the rest of the year).

Labor Day was originally to honor the working class. While unions still play up this fact, for most people it’s the last hurrah of summer. In business it can be, “Now we can get some things done!”

So what do you want to get done between now and the end of the year? In my world I see the following:

Business owners start seriously thinking about their next great adventure in life. (Hint, time to read my book, If They Can Sell Pet Rocks Why Can’t You Sell Your Business (For What You Want)?) An owner who wants to sell in 2017 should take the next six months and start doing all the things recommended in my book (versus just “putting it on the market” as-is).

Business buyers typically get active. Most erroneously believe they can start in September and close by December 31 but that’s okay. Optimism is always good. Being our second renewal of the year it’s when we take a little more time to plan and think through what we want. It’s time to take control, create independence, and create self-wealth versus shareholder wealth. Or, to buy another company to leapfrog the competition. (Another hint, read my book Buying a Business That Makes You Rich.)

Owners looking to grow will take the necessary steps. Judging by the number of people in my class on growing a consulting business 10 days ago there will be more people taking control of their life in this manner.

All in all, it’s a time of action.

“The future depends entirely on what each of us does every day. After all, a movement is only people moving.” Gloria Steinem