The question that can kill your sale in 5 minutes

Why “why are you selling?” and “are you staying or not?” matter more than your EBITDA in the first meeting with buyers

Before the first meeting with potential buyers, I always hold a preparation session with the founders. The interested parties have already seen the info memo, so there is usually no need to explain the company from scratch again. Instead, the meeting tends to focus on questions and clarifications.

In these sessions, I try to anticipate what they are going to ask, or at least identify the most sensitive issues for that specific company, as well as a number of questions that arise almost systematically. I prepare founders for delicate topics, such as a heavy dependency on a single client and the need to explain why that dependency will continue over the coming years, an increase in churn in the last financial year and the reasons behind it, or a potential regulatory risk. I work with founders on how to address these uncomfortable questions and how to answer them properly, and I also spend time on two or three questions related to projections that are almost certain to come up.

I also explain something important to them. If they are asked something very specific and not core to the business, they can answer it later. If someone asks about this year’s gross margin compared to last year’s and they don’t know the answer, that leaves a very bad impression. If, on the other hand, they ask about the detailed depreciation schedule for the year and the founder doesn’t have it top of mind, it is reasonable to say they will review it and come back with an answer. You don’t need to know everything, but you cannot show that you don’t know the main KPIs of your own company.

In most cases, the entrepreneurs I work with master this part quickly, because they know their business inside out and, with a bit of preparation, they usually answer operational questions very well. They may need a bit more training on projections, but they generally handle those well too.

The real problem appears when we start working on another type of question — questions that are not technical or financial, but rather related to the founder’s strategic and personal decisions. And it is precisely in this area where many founders get stuck.

Why are you selling the company?
What do you plan to do next?
How many years are you willing to stay?
In what role?
What percentage are you willing to sell?
Would you reinvest part of the proceeds?

We are looking for an industrial partner to take the company to the next level. The business is doing very well, as you’ve seen in the P&L and the growth figures, but we believe we could internationalize if we had the right partner.

What percentage of the company do you want to sell?

100% of the shares.

Would you consider selling thirty percent or fifty-one percent in a first phase?

I was actually thinking of a 100% acquisition.

But you said you were looking for a partner to grow the business, right? A 100% acquisition is not a partner, it’s an owner. Our idea would be: we buy 51%, help you internationalize through our network in other countries, and in five years you sell the remaining 49% under a pre-agreed formula, once the company has grown significantly and you make much more money.

That’s not exactly what I had in mind. We’re looking for a company to help us grow, but by selling 100% now.

You intend to stay, because it’s clear you’re key to the business and we wouldn’t consider buying without you. Would you be willing to stay between three and five years after selling 100%?

Yes, no problem at all. I’d be happy to stay and help.

If you stay (and are looking for a partner), wouldn’t it be more motivating to keep a meaningful equity stake, grow together and achieve a strong return later on?

I could sell 100%, although perhaps there could be an earn-out linked to certain targets.

What would you think, for example, of valuing the company at six times this year’s EBITDA, i.e. twelve million? We would pay six million now and the rest via an earn-out based on 2030 EBITDA multiplied by six. If the business plan shows four million of EBITDA in 2030 and, with our international synergies, that doubles to eight million, you would sell the second part at a valuation of thirty-two million: sixteen million for your fifty percent. For that, we would need you to remain in charge and to execute the second sale in five years.

I was thinking more about receiving the twelve million now and maybe an earn-out of a few additional million linked to the results of 2026 and 2027.

Would you stay until 2030 having sold 100% in 2025 and having received all the money between 2026 and 2027?

Yes, of course.

I don’t know. It doesn’t seem like you’re really looking for a partner, but rather for someone to buy your company. So what is the real reason you want to sell?

From day one of the process, it is essential to be clear about what you are willing to do, whether you are willing to stay and, if so, for how long. If you are not willing to stay, it is worth asking whether that is realistic, because when a company depends heavily on its founder or founders, most buyers will not be willing to acquire it unless you remain involved for a period of time. In that case, before going to market, the company needs to be prepared by strengthening the management team with credible professionals, truly delegating, and demonstrating with facts that the business continues to perform well without your day-to-day involvement.

If you are willing to stay, you also need to think about for how long, because expectations vary greatly depending on the type of investor. A lower-end private equity fund or a family office may want the founder to stay for the entire cycle until the next exit, especially if the business is founder-dependent. If that is not your plan, it makes sense to exclude that type of investor from the outset.

The key is to have a clear vision of what you are willing to do and to understand that, if you stay, the buyer will want you to be genuinely committed and with aligned incentives. No one believes that an entrepreneur who has sold 100% of their company for, say, ten million euros will remain motivated solely by a salary of one hundred and fifty thousand euros and a potential extra million in earn-out. Buyers are not naïve. They know that the only way you will stay motivated in a completely different context, without full control, is if you have upside if things go well and downside if they go badly or if you leave early.

That’s why you need to think this through in advance and then be consistent in your answers. You can fail almost any question in a meeting with investors and still move forward, but the motivation for selling is decisive. If they sense that you are selling because you see significant future risks — whether related to growth, technology or regulation — they will not want to buy. If they believe you are improvising about your willingness to stay, which is usually quite evident, the process will stop even if the business is well explained and otherwise attractive.

By Joshua Novick, Partner atBondo Advisors

Source:
https://www.joshuanovick.com/p/la-pregunta-que-puede-cargarse-tu