Building the Buyer List With the Client: Who Should Never See the Book

The first pass: who has bought businesses like this one

The first pass is about evidence of buying, not expressions of interest. Many firms say they acquire lower-middle-market companies. Far fewer have closed a transaction in the client's industry and size range within the last two years. The list should start with those.

Three buyer categories need to be on the list, in proportions that reflect the client's goals. Private equity firms with a platform in the client's sector, for whom the client is an add-on, and firms seeking a new platform in the sector, for whom the client is a first entry. Strategic buyers, meaning operating companies in the same or an adjacent industry for whom the client fills a geographic, product, or customer gap. Family offices that invest directly and that have a stated interest in the industry or a holding period that fits the owner's goals.

For each candidate, the attorney should know what the buyer has closed, what size, whether it uses debt, who the relevant partner or corporate development lead is, and whether the buyer has a portfolio company that competes with the client. That last fact decides whether the buyer goes in the first wave, a later wave, or the exclusion list.

A first-pass list for a business with $5 million of EBITDA might run to 150 names. That is a working list, not a distribution list. The second pass cuts it.

The second pass: the client’s exclusion list

The client reviews the full list, name by name, and the attorney records the client's decision and reason for each. Four groups usually come off.

Direct competitors who would gain more from reading the CIM than from buying the company. The client knows which ones these are. Some competitors are credible buyers who would pay a strategic premium; others are fishing. The client's judgment on this is better than any database, and the attorney should defer to it with one caveat: a competitor the client dislikes is not the same as a competitor who would not pay, and the attorney should ask which it is.

A competitor may also raise competition and information-control issues. The DOJ and FTC Merger Guidelines examine whether a merger would eliminate substantial competition between the parties. [2] The FTC cautions that current and future prices, strategic plans, costs, and other competitively sensitive information require care during pre-merger negotiations and diligence, especially when the parties compete. Counsel should confirm the firm's own position with its own counsel on how applicable antitrust rules, state rules, and transaction safeguards apply to the proposed disclosure. [1]

Customers and suppliers. A customer who learns the company is for sale may delay orders or seek concessions. A supplier may tighten terms. Unless the customer is a plausible acquirer and the client is willing to accept the risk, these names come off.

Parties with history. Former partners, former employees who left to start competing businesses, and buyers who approached the owner before and behaved badly. The client will know.

Buyers whose structure does not fit. If the client will not accept an earnout, a buyer whose every deal includes one is wasted outreach. If the client wants to exit fully at close, a buyer who requires meaningful rollover is a mismatch.

The exclusion list is recorded with reasons, because the client may change position later, and because the attorney wants to show the client at the end of the process that every decision about who saw the book was the client's.

Sequencing the list into waves

The remaining list goes out in waves rather than all at once. The first wave is the buyers most likely to pay the highest price and move the fastest, typically private equity firms with a sector platform and strategic buyers with a clear gap. The second wave adds the broader private equity universe and family offices. A third wave is held in reserve for use if the first two do not produce enough IOIs.

Waves serve two purposes. They let the attorney learn from early responses and adjust the teaser before the bulk of the list sees it. And they keep the client's information in fewer hands for longer, which matters when the identification risk is high. The FTC similarly recommends tailoring the amount of information shared to the stage of the sale process, with less detail typically needed when more firms are still considering whether to bid. [1]

The client should see the wave assignments and agree to them. A client who wants a particular strategic buyer in the first wave because the owner has a relationship there is usually right to ask, and the attorney should accommodate it while making sure the contact still goes through the firm.

Tiering within the list

Within each wave, the attorney should tier buyers by likely fit and likely price. Tier one buyers get a personal note from the partner. Tier two gets the standard outreach from the associate. Tier three gets the teaser with less follow-up. Tiering does not change what any buyer receives, which is always the same teaser and the same NDA, but it changes how much of the firm's time goes to each.

The tier also sets expectations for the client. If the client's top three strategic buyers are all in tier one and all pass, the client should know what that means for the likely range before the IOI deadline arrives. A process with no tier one interest can still succeed, but it is a different process.

Keeping the list alive during marketing

The buyer list is not finished when outreach starts. As buyers respond, the attorney records the response and the reason, and the pattern tells the attorney whether the positioning is right. If three private equity firms pass because the business is too small for their fund, the attorney adjusts the second wave toward smaller funds. If two strategic buyers ask the same question about customer concentration, the CIM may need a stronger answer.

The list also grows. Buyers who sign the NDA sometimes mention a firm that would be a better fit. A buyer who passes may recommend a competitor. Each addition goes through the same client review before it receives anything.

One thing to do this week: for an owner client you know, write down the ten companies the owner would least want to know the business is for sale, and the ten the owner would most want to see as a buyer. The gap between the two lists is where the client review starts, and it is a useful conversation even before a process is underway.

How Acquivo Pro fits

Acquivo Pro reads the data room, the company website, and the client questionnaire and builds a prospect list tailored to that client using documented buyer-matching criteria. The attorney reviews that list with the client, records the exclusions and the reasons, sets the waves and tiers, and makes every buyer contact. The platform matches and organizes; the attorney and the client decide who sees the book. To walk through a process on a client you have in mind, request a demo through the Contact page.