Choosing a buyer for your SME: the 10 questions to ask before signing

What matters as much as the price

An offer is judged on four terms, not on one: the amount, the payment structure, the conditions precedent and what is planned for the team. Two offers at the same headline price can leave a gap of several hundred thousand euros in cash actually received.

The buyer's profile, competitor, fund, individual buyer or internal team, largely determines these four terms. Compare buyer profiles in detail.

A simple example. An offer of €2m paid in full at closing, with no financing condition and with a warranty capped at 15% for two years, leaves the seller with more than an offer of €2.3m of which €400k is deferred over three years and conditional on results. The second looks better; the first cashes in better.

The questions about financing

• Where do the funds come from, and are they already secured?
• Is the offer conditional on obtaining financing?
• What share of the price is paid at closing, and what share is deferred or indexed?

These three questions alone explain the majority of deals that fall through after the letter of intent is signed. An offer with no financing condition is worth, at equal price, markedly more than a higher offer subject to a bank's approval. It is the variable sellers underestimate most.

How to check without being intrusive: ask for a comfort letter or a bank coverage letter, the identity of the financial partners, and the list of deals already taken through to completion. A serious buyer provides these without difficulty. Reluctance on this point is an answer in itself.

The questions about the timeline and the warranties

• What is the real timeline between the letter of intent and closing?
• What level of asset and liability warranty is requested, for how long and with what cap?
• How many comparable deals has the buyer taken through to closing?

On the files we handle, a well-prepared file obtains a reasoned purchase position in about a month, and reaches closing in four to six months. Those with incomplete financial information almost always exceed nine months, and it is during those months that value erodes. These durations are practical benchmarks; they vary with the size of the company and the buyer's profile.

On the asset and liability warranty, the cap, the duration and how it is triggered determine what you actually receive, sometimes three years after signing.

Also watch the length of the exclusivity granted. A long exclusivity granted to a poorly financed candidate ties up the file for several months and weakens your position with the other candidates, who do not always come back.

The questions about the team and what comes after

• What role is expected of the seller after the sale, and for how long?
• Who will run the company, and has that person already been identified?
• What is the intended holding period?
• What becomes of the existing team, in particular the support functions?

This is the block most owner-managers ask last, even though it determines their satisfaction two years on. Ask precisely which functions are kept, what happens to the site, and whether employees will have access to the capital.

What to do with the answers

Write them down. A reassuring verbal answer that appears neither in the letter of intent nor in the sale agreement binds no one.

Then compare the candidates on the same four terms, not on the impression left in a meeting. The best buyer is not the one who shows the highest price; it is the one whose offer is the most certain to go through on the terms announced.

A useful reminder in France: in companies with fewer than 250 employees, informing employees of a planned sale is subject to legal obligations whose timetable must be built in very early.

A four-column table is enough: amount, share paid at closing, conditions precedent, commitments on the team. Filled in for each candidate, it makes the decision far less emotional than it usually is at this stage.