How Many Prospective Buyers Are Needed to Optimize Selling Price?

When wire harness company sellers ask me about the recommended number of prospective buyers to maximize sale price, I often respond with this informative tale:  

A number of years ago an owner approached me after having already started down the path of selling his harness company. But when he realized he had entered into an agreement with an advisory firm that had little knowledge of the wire harness industry, he pressed the pause button. The owner was especially uneasy about the firm casting a wide net to start the sale process.

When I asked the owner how many buyers the broker was likely going to contact, he said at least several hundred. Then he asked me if I were to help him sell his company how many prospective buyers I would contact. When I responded “about a dozen,” he did not hide his surprise.

I then explained that these dozen or so would all be folks who are in the wire harness business, who have a strong appetite for acquisitions, and who have the financial capability and other wherewithal to make deals happen. I added that, in fact, the majority would be companies I have gotten to know over the years by selling them a harness company. 

The seller then said he wanted to consider changing course. He could see that my approach reduced the confidentiality risk while likely making the process far less time-consuming for him because he wouldn’t have to educate prospective buyers about the wire harness industry. Both of those considerations turned out to be accurate, and the seller was eventually extremely pleased with the outcome.

Because I have now been doing this for a long time, I do have a group of potential buyers I know well. And actually, to create a competitive process and optimize a sale price, all you need is two seriously interested parties.

When I approach about a dozen folks, I generally find that about three or four are seriously interested. And I have found that this number of prospective buyers is adequate to generate an optimum price.