Business Brokers BC Blog

The business for sale in BC was an internet based tour operator, booking families into some of North America’s best resort locations. The owners (a married couple) both worked in the business for an average of around ten months per year, so were able to enjoy a nice break each year. Although it was only five years old it was achieving revenue growth of around 60% a year for its last two years and was on target to reach $2,000,000 in annual sales with an EBITDA of $170,000. Although it was in a very competitive market against companies with marketing budgets in the $100,000s this small company did incredibly well in the internet search engines – often coming up within the first page for a related search enquiry.

As soon as we listed the company for sale we had a lot of interest, from individuals and from other tour operators. There is a good appetite for tourism businesses, for internet businesses and also for home based businesses. This trend continues today.

Within three months we had three very interested buyers. One group liked the business because it had a high percentage of repeat customers who in addition were high-end consumers prepared to pay more than average (but who of course also expected excellent service and product). The buyer believed he could up-sell other products and services to these clients. Another buyer group saw a lot of potential with a completely underutilized transportation element of the business. The third couldn’t believe the traffic that came to the website through organic searches and saw enormous potential in monetizing this.

Then one of the groups made an offer. After a few offers and counter offers the spirit of a deal was agreed upon and signed. Then began the process of due diligence, financial statements were reviewed, contracts were confirmed, the robustness of the software was checked, licenses were reviewed.

Then a hic-cup occurred. The buyer only had a portion of the purchase price and was seeking funding from a bank lender for the balance. The bank wanted “Review Engagement” financial statements as opposed to “Notice to Reader”. This would mean around $5,000 in accounting fees and a time delay of around six weeks. Who was going to pay for this? Why should the Seller pay for it as he didn’t need them and what if the deal collapsed? He would have a nicely presented set of books but what else? Also, the Buyer felt that he should not pay for it as if there was nothing to worry about and the numbers were a true reflection of the business then the deal would close. The result? Compromise. They agreed to split the costs. The numbers were confirmed. The bank was happy. Funds were advanced and the deal closed.

We always ask ourselves, what do we learn from each transaction? In this case we learned that every deal has unique triggers. These are features of the business that stand out and make it different from others, give it a key competitive advantage and make it attractive to Buyers. Not all Buyers see the same triggers but they are key in making a buyer move to make an offer. The other thing we learned is the need for parties to compromise. To be too stubborn can lead to a transaction collapsing. There has to be an element of give and take in these smaller transactions. Add to this the fact that oftentimes the seller and buyer will be spending the next few months together as the transition in ownership takes place. If the basis of the negotiation is too ruthless a lot of goodwill can be lost and may mean short-term financial gain for one party but can negatively impact on the longer term success and objectives of both parties.

This entry was posted on Thursday, May 7th, 2009 at 8:52 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.