Buyer and Offer Screening
How can you identify serious prospective buyers? And how do you compare incoming offers? This module shows you what to look for when selecting buyers and what warning signs to watch out for.
1 Who are the typical buyers?
Not every prospective buyer is the same. Depending on the type of business you’re selling, you’ll encounter different types of buyers. It helps to be familiar with the main groups so you can better categorize incoming inquiries.
The Four Most Common Types of Buyers
Individuals / MBI candidates: People who want to take over an existing business to become self-employed. MBI stands for “Management Buy-In”: an external manager joins the company as the new owner.
Strategic buyers: Competitors or companies in the same industry that want to grow or complement their operations through the acquisition. They often buy to acquire customers, employees, technology, or products.
Financial investors: Private equity firms that intend to increase the company’s value within 4–7 years through growth and improved earnings before reselling it.
Successors from within the company: Employees, business partners, or family members who are already familiar with the company and wish to take it over.
For small companies (<2 million EUR), private individuals and MBI candidates are the most common buyers. Large corporations or traditional private-equity funds are generally only interested in companies of a significantly larger size. One exception, however, is private-equity investors with a buy-and-build strategy: They specifically target small companies as add-ons to existing portfolio companies in order to strengthen those companies’ market position.
2 Recognizing Serious Prospective Buyers
When prospective buyers contact you, it’s important to be able to quickly assess whether they’re serious. Not every inquiry is a good one, and you don’t want to waste your time or share confidential information with unsuitable prospects.
Signs of a serious buyer
Completed buyer profile: A prospective buyer who takes the time to create a detailed profile demonstrates serious interest.
Specific questions: Serious buyers ask specific questions about the business model, employee structure, customer base, and financial metrics—not just a general request for “all documents.”
Fair transaction structure: A seller loan or an earn-out is not unusual. Especially in smaller transactions, deferred equity is often a prerequisite for securing financing at all, and the buyer’s bank may even explicitly require it. Therefore, don’t focus on whether such instruments are used, but rather on their proportion of the purchase price: it becomes a problem when the portion paid immediately is so small that you end up bearing the majority of the risk.
Sound Financing: The buyer has sufficient equity, and the intended debt is manageable for the company—meaning the financing does not jeopardize ongoing operations.
Plausible Profile: The buyer does not necessarily have to come from the same industry. What matters is a clear fit between their skills and your company’s requirements.
Be wary of prospective buyers who want documents right away but don't have a buyer profile and don't ask specific questions. This often indicates curiosity rather than a genuine interest in buying.
3 Compare and Rank Offers
When you receive quotes, it's not just about the amount on paper. A quote consists of several components that you should compare carefully.
What’s in an offer?
Purchase Price: The amount the buyer is offering for your company. Always ask what the figure is based on: the enterprise value (calculated as if the company were debt-free and had no bank balances) or what you’ll actually receive after deducting the debt (equity value). Otherwise, the two offers cannot be compared at all: An offer based on enterprise value sounds higher, even though less remains at the end of the day (→ Module 4: Valuation, Price Bridge).
Payment Model: How will payment be made? Lump-sum payment, installment payments over several years, or an earn-out (where part of the price depends on future results).
Financing: What is the composition of the financing? What portion is equity, and what portion is debt? Is there proof of the planned equity, and are there already term sheets from banks for the debt?
Conditions: Conditions precedent such as due diligence, financing commitment, or third-party consent (e.g., landlords, banks).
Timeframe: By when should the purchase be completed? Realistic timeframes are 2–4 months after acceptance of the offer.
The payment model and financing are the most important indicators of the legitimacy of an offer. An excessively low equity ratio, a debt burden that the company cannot sustain, or excessive reliance on seller loans and earn-outs suggest that the buyer wants to shift most of the risk onto you. Ask to see proof of equity and debt.
The highest offer isn't always the best. Also pay attention to payment security and terms. A lower offer with immediate payment may be better than a higher one with an earn-out and many conditions.
4 Red Flags: When Should You Be Cautious?
Some warning signs may indicate that a prospective buyer or an offer could be problematic. Take these signs seriously and don't let yourself be pressured.
Red Flags with Buyers
Failure to consult financing partners before the LOI: The buyer wants to sign an LOI without having the transaction structure reviewed by lenders.
Unrealistic timelines: Wants to close the purchase within 2 weeks or is pushing hard for speed.
Refusal to sign an NDA: A prospective buyer who refuses to sign a non-disclosure agreement is not a serious buyer.
Asks for confidential information without reason: Demands immediate access to customer lists, supplier contracts, or bank information without first asking basic questions about the company.
No clear interest in purchasing: Asks only superficial questions and comes across more as someone gathering information than as a genuine buyer.
Long response times: Often leaves emails unanswered for more than 3–4 days or does not return calls promptly.
A prospective buyer who refuses to sign an NDA is not a serious buyer. Never disclose confidential company information without a signed confidentiality agreement.
- No reservations about private individuals: For small businesses, private individuals and MBI candidates are the most common buyers, but private equity firms with a “buy-and-build” strategy are also a possibility
- Seriousness is evident in the details: Project-specific questions instead of boilerplate text, a plausible fit with the company, and fair transaction structures—these are what distinguish serious buyers from time-wasters
- No deal without proof of financing: Proof of equity and bank term sheets for debt financing are non-negotiable. Anyone who cannot or will not provide these is not a serious buyer
- Price isn’t everything: The payment model and financing structure determine the actual quality of an offer, not the number on paper
Answer 5 questions about buyer and offer screening. All answers must be correct to complete the module.
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